"Surplus" is a word Californians haven't heard in the same sentence with "government" in a very long time. But now the state's nonpartisan Legislative Analyst's Office is forecasting a budget surplus of $5.6 billion by 2015. By 2018, it's expected to grow to $9.6 billion.
You can almost see the politicians in Sacramento rubbing their hands together, Democrats plotting to fund new programs and Republicans envisioning a tax cut. (That's just fantasy, since the GOP holds no power, but they can dream, right?)
But hold on. It's not really a surplus.
California is tens of billions of dollars in debt, largely as a result of the last recession. There are a few places where targeted increases in spending might make sense -- for example, in mental health care -- but the vast majority of this money should be used to pay down debt and to set aside a cushion against the next recession.
Mac Taylor, the legislative analyst, laid out a proposal to do that last week. He recommends that the state set aside $8 billion by 2016, which would buffer the hit to the budget that would come from a moderate recession. That's crucial. A rainy-day fund will protect schools from deep cuts, ensure that the most vulnerable among us can still get medical treatment and help provide the stimulus spending necessary to keep a future recession from turning catastrophic.
Taylor also recommends paying off what Gov. Jerry Brown calls the "wall of debt," money borrowed over the past decade or so from schools, other governments and investors. The budget passed last summer called for that number to go from its current level, $27 billion, to about $5 billion by 2017. This year's windfall would enable the state to pay it all off by the following year, freeing space in the annual budget for additional spending from then on.
The state also has tens of billions of dollars in unfunded pension liabilities. Taylor recommends paying down $10.5 billion of them by 2020 -- a good start, but just a fraction of what's needed.
Californians can thank their Legislature, Brown and themselves for this enviable position. Lawmakers made tough choices in the past few years, cutting crucial services for some of the most vulnerable state residents. And voters passed Propositions 30 and 39 to bring in billions in new revenue. Just imagine what could happen at the federal level if lawmakers in Washington adopted this kind of balanced approach.
California is in a much better position now, but it won't return to full fiscal health until it pays down its debt and prepares for the next recession. To do that, lawmakers will need to resist the impulse to squander these hard-fought gains, no matter how compelling the needs.