'Fiscal cliff' casts shadow on state's rosy economic forecast
While California budget watchers celebrate some cautiously optimistic fiscal news, they are casting a wary eye toward Washington, where a debate over the so-called fiscal cliff could threaten the state’s fragile economic recovery.
Congress has until the end of the year to reach a deficit-reduction deal with President Obama. If those talks fail, about $500 billion worth of spending cuts and tax increases are set to automatically take effect.
The Congressional Budget Office says that could slow the national economy and spike unemployment, sending shockwaves through the nation's economy that would be felt all the way to California.
In a news conference this week, the state’s nonpartisan legislative analyst predicted the state could see budget surpluses as early as 2014, thanks in part to the passage of Proposition 30, which will bring in an estimated $6 billion more in tax dollars for the next several years.
But that could be undermined if an accord on Capitol Hill remains elusive.
“Federal decisions concerning the so-called fiscal cliff could plunge the U.S. economy into recession in 2013 and result in much weaker economic conditions in the near term,” the analyst warned in its updated forecast for the state economy Wednesday.