Governor Brown is also expected to release his proposed 2013-14 budget on January 10. Due to the slowly improving economy and the temporary taxes approved by the voters, the legislature will be under much less pressure to cut vital services than we have faced in the past few years. While we will face a $1.9 billion deficit next fiscal year due to revenue shortfalls in several areas of the budget, by fiscal year 2014-15 a modest surplus is projected.
Despite this good news, it will be important to be very cautious as we move forward, since there are a number of assumptions built into the economic forecast and, as we have learned painfully over the past few years, economic assumptions do not always become reality. An agreement between Congress and President Obama over the New Year's holiday averted a possible plunge off the "fiscal cliff" by extending tax relief for the middle class and continuing unemployment benefits for the long term unemployed, both of which mean a continued flow of funds into our state economy. However, the New Year's deal only postponed automatic spending cuts, called sequestration, for a few months. Sequestration is potentially very damaging because it would impact federal contracts and military spending, both of which are key to our state and local financial well-being. I will continue to monitor progress on these spending cuts and convey to our representatives in Congress how critical these funds are to California.