California is at the very center of the New Economy. Many of the state’s principal industries are key contributors to the productivity revolution that has marked the last decade of sustained economic growth and rising prosperity nationwide. California is by far the nation’s—and the world’s—leader in high-technology manufacturing and services, including electronics, information technology, the Internet, computer programming and software, biotechnology, and entertainment.
California’s central role in this economic revolution has been reflected by gains in most measures of prosperity—including State tax revenues—that over the last two years have far exceeded even the most optimistic expectations. Despite this outstanding performance, the period immediately ahead is fraught with a significant degree of risk from several sources:
Again this year, a portion of the additional money available in the Budget reflects revised estimates of the economy’s performance and revenue receipts in 2000-01 and prior years. Because in part these additional resources reflect past appreciation in stock prices, these revenues should not be considered a source of funds for ongoing spending commitments.
In recognition of the windfall nature of a portion of these additional revenues, this Budget proposes $3.7 billion in one-time spending and set-asides. Utilizing these funds for one-time purposes recognizes the fact that these revenues are not part of current income in the budget year.
Major one-time items include:
Set-Aside for Legal Contingencies
Lawsuits relating to past budget actions—particularly those of the early 1990s—have been a significant feature of the fiscal environment facing this Administration. This year’s Budget again sets aside funds to deal with a number of lawsuits that pose a significant fiscal threat. The proposed Budget contains a $500 million set-aside for legal contingencies.
During the current fiscal year, these funds were used in three significant cases that were settled:
Even though the foregoing cases have been recently resolved, other long-litigated cases remain pending against the State. Prudence dictates that the State continue to set-aside the resources to meet our legal obligations whether through settlement or final court judgment.
Providing A Prudent Reserve
The Budget proposes General Fund reserve of just over $1.9 billion, equating to 2.4 percent of revenues, to address the State’s budgetary needs for the coming fiscal year. Prudent budgeting dictates this course of action given the uncertainty of current revenues, the volatility of the stock market, and other economic risks. This reserve will safeguard the State in the event of any unanticipated economic downturn, caseload increases, or emergencies that may arise.
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