But a budget deficit still could still resurface if there’s a downturn on Wall Street or in the larger economy, according to the LAO. The state’s technology economy, the prospectus says, could be one key factor among several that ultimately decides whether the state continues to accrue reserves or instead falls back into deficit.
“California’s economy and the state budget now are quite reliant on the San Francisco Bay Area,” the LAO says. The Bay Area is leading the state in job growth over the past year. “California’s job growth has been fairly strong recently, and that is largely because of the robust growth in the Bay Area’s technology sector.”
The LAO notes that the Bay Area — and all those high-wage earners in the tech sector — account for 17 percent of the state’s population, but pay 36 percent of California’s personal income tax: “The key reason for this is that Bay Area residents’ average incomes and effective tax rates are well above statewide averages.”
“Given California’s economic and fiscal reliance on the Bay Area, a key question now arises: when will the Bay Area’s current, technology-fueled growth subside? Moreover, when growth subsides, will it merely slow down or will it undergo a more severe downturn akin to what happened after the dot-com bubble burst nearly 15 years ago?” the LAO asks.
The implication, in the simplest terms, could be that as goes the Bay Area, so goes the state budget. Here are two growth scenarios the LAO presents through 2020, and the surplus or deficit that could result.
Source: LAO
