COVID-19 and California’s Evolving Fiscal Outlook [Publication Details]

Mar 18, 2020 - In this installment of Fiscal Perspectives, Legislative Analyst Gabriel Petek offers some initial observations on the recent volatility in financial markets, palpably sharp reduction in economic activity, and the state’s fiscal position at the outset of the COVID-19 outbreak.
https://lao.ca.gov/Publications/Detail/4203

COVID-19 and California’s Evolving Fiscal Outlook

Mar 18, 2020 - Volatile Financial Markets Indicate Lower Capital Gains-Related Tax Revenue Taxes on capital gains are a significant source of state revenue. Even in “normal ” times, capital gains income is difficult to forecast because it correlates with stock market performance.
https://lao.ca.gov/Publications/Report/4203

The 2025-26 Budget: California's Fiscal Outlook

Nov 20, 2024 - Still, some cautionary observations are warranted. Current stock prices relative to companies ’ past earnings (a common measure of how “expensive ” stocks are) are at levels rivaled only by the transitory booms of 1999 and 2021.
https://lao.ca.gov/Publications/Report/4939

Rethinking California's Reserve Policy

Apr 10, 2025 - Asset market downturns, like stock market drops or real estate slumps, can also reduce capital gains tax revenue and other investment ‑related income, lowering state revenue. Conversely, revenues can grow quickly in response to economic expansions or run ups in the stock market.
https://lao.ca.gov/Publications/Report/5028

Despite Fiscal Forecasting Uncertainties, Multiyear Budget Planning Essential

May 27, 2021 - Under this approach, we also still recommend building larger discretionary reserves  by restoring the budget tools that were deployed in last year ’s budget. Note that under either revenue assumption, we recommend providing for larger discretionary reserves.
https://lao.ca.gov/Publications/Report/4443

The 2021-22 Budget: The Governor’s Proposition 2 Proposals

Apr 26, 2021 - Capital gains depend heavily on movements in financial markets. This means that in order to project capital gains revenues for the budget year —to fulfill the Proposition  2 requirements —the state must estimate the level and growth of the stock market between July 2021 and June 2022.
https://lao.ca.gov/Publications/Report/4418

The 2023-24 Budget: Multiyear Assessment

Feb 15, 2023 - State revenues tend to grow when the economy is expanding and shrink during periods of downturns or when financial market conditions are tightening. In the last couple of decades, the state has faced a choice about how to prevent that volatility from resulting in large cuts to programmatic spending.
https://lao.ca.gov/Publications/Report/4687

The 2025-26 Budget: Undertaking Fiscal Oversight

Feb 24, 2025 - For example, is the program aimed at a well-understood gap or market failure? Does the problem still exist in the way it did when the program was created? The Legislature can then assess whether the program is designed to address that problem.
https://lao.ca.gov/Publications/Report/4983

The 2021-22 Spending Plan: Other Provisions

Sep 23, 2021 - Visit California is responsible for marketing the state as a tourism destination and is funded through a voluntary assessment on the tourism industry. Increases Visit California Transparency. The budget package requires Visit California to prepare reports for the Legislature that identify how the public funds provided for tourism marketing were used and that measure the effectiveness of those marketing activities.
https://lao.ca.gov/Publications/Report/4452

New Inflation Poses Not So New Budget Risk

Dec 15, 2022 - When the Fed raises the funds rate, it causes financial conditions to tighten, evidenced by generally higher interest rates throughout credit markets. Higher interest rates disincentivize consumers from borrowing and —by raising the cost of capital —dissuades firms from borrowing to make new investments.
https://lao.ca.gov/Publications/Report/4653