The 2026-27 Budget: How to Use One-Time Revenue Improvements [Publication Details]

Feb 20, 2026 - Recent stock market performance continues to boost income tax collections. In our Fiscal Outlook, we strongly advised the Legislature to treat near-term strength in tax collections as temporary because we expect these gains to reverse. Further, the state faces significant structural deficits in the future.
https://lao.ca.gov/Publications/Detail/5133

The 2026-27 Budget: How to Use One-Time Revenue Improvements

Feb 20, 2026 - The 2026-27 Budget: How to Use One-Time Revenue Improvements The 2026-27 Budget How to Use One-Time Revenue Improvements Recent stock market performance continues to boost income tax collections. In our Fiscal Outlook , we strongly advised the Legislature to treat near-term strength in tax collections as temporary because we expect these gains to reverse.
https://lao.ca.gov/Publications/Report/5133

The 2026-27 Budget: California's Fiscal Outlook

Nov 19, 2025 - Instead, because a market downturn is only a risk but not a certainty, our forecast includes income tax collections that are somewhat weaker than suggested by cash trends, but still tens of billions of dollars above where they would be if stocks actually drop significantly.
https://lao.ca.gov/Publications/Report/5091

California’s Strong Revenue Trends Mask Looming Budget Risk

Jan 23, 2026 - While the Governor ’s budget describes the financial markets as a leading risk to the budget and assumes that stock market appreciation slows, it does not explicitly factor the risk of a market downturn into its revenue estimates.
https://lao.ca.gov/Publications/Report/5104

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

The 2026-27 Budget: Overview of the Governor's Budget

Jan 12, 2026 - Stock Market Poses Serious Risk to Revenues. Several historically reliable signs suggest the stock market is overheated and at high risk of reversing course into a downturn in the next year or so. Should a stock market downturn occur, income tax revenues would fall considerably.
https://lao.ca.gov/Publications/Report/5101

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

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

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