29 December 2013

California Orders Up a Spending Splurge on Education with a Side of Budget Surplus

Non-partisan legislative analysts are forecasting budget surpluses for the state of California on the order of $234 million for this year, $2.4 billion for next (2013-2014), and $5.6 billion for the year after (2014-2015).

But these surpluses are just part of the good news. Revenues are now expected to be nearly $5 billion higher than initial forecasts. And a disproportionate amount (about $3 billion) of that extra revenue is going into schools.

As if it is not good news enough that spending on education is going up and budget deficits are becoming budget surpluses, these optimistic projections are already proving too cautious. To quote,

Through the end of October, 2013-14 PIT [personal income tax]
estimated payments—tied in large part to capital
gains and business income—have exceeded
the administration’s monthly projections by
34 percent

Further, they've been cautious in the estimate of income from stock, wildly underestimating the increase in stock prices for 2013, so that, too, will cause revenues to be higher than these projections.

Classrooms have steadily been growing larger since the Great Recession. I'm not sure how typical it is, but I do know that at my wife's elementary school the class sizes grew by 20% to 100%. This year at her school, kindergarten classes were 37 for the first month or two of the year before being brought down to 27. At a minimum this infusion of money into education should help to stall that trend, perhaps even reverse it.

On a side note from the report about housing, investors came into California with cash in 2013, seeing bargains in the depressed prices apparently. And they paid cash.

In Los Angeles,
cash purchases as a portion of all home
sales increased from 5 percent in 2005
to 34 percent in May 2013, the largest
increase in the country. Other areas of
California have similarly high all-cash
sales rates

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