Appropriations for 2019–21 from funds subject to the outlook and the new workforce education investment account total $52.852 billion (pending gubernatorial action), an 18.3 percent increase over 2017–19. That includes $2.367 billion of spending on new policy. Major new spending items include funding the collective bargaining agreements with state employees and school employee health benefits, as well as increasing spending for higher education institutions and financial aid.

State revenues from existing resources are enough to fund the maintenance level (the cost of continuing current services). To pay for the new policy spending, the Legislature passed several new tax increases. These include business and occupation tax increases on certain businesses in the service and other activities category and on certain financial institutions and graduating the real estate excise tax rate. Notably, the Legislature did not adopt a capital gains tax.

The high level of spending in the maintenance level budget and the likelihood of an economic downturn should have moderated the Legislature’s appetite and led to an increased focus on sustainable budgeting and building reserves. Yet the Legislature increased taxes by more than a billion dollars and much of the new revenue is directed to accounts that are not subject to constitutionally-required transfers to the rainy day fund. The result is a budget that may not be sustainable.

Read the full policy brief here.