But that's exactly the problem - too much money. When revenues grow this quickly, the budget is put at risk by committing all of the revenue increase to ongoing spending. California's state finances have been victim of a boom-bust cycle for quite some time. When the economy is strong, revenues grow quickly. During the boom years, policy makers typically commit all of the revenue to spending programs.
Large deficits are the result, as revenues are unable to keep pace with inflated spending demands.
This boom-bust cycle is largely caused by the state's aggressive revenue system, especially the personal income tax. When the economy grows, California's income tax revenues grow even faster than the overall rate of economic growth. Economists call this a very elastic tax - it grows faster than the economy during booms, but it drops like a rock when the economy busts. One solution would be to reform the revenue system by making the income tax less elastic. This could be accomplished by reducing the income tax's heavy reliance on upper- income taxpayers, whose incomes vary much more with economic cycles than average taxpayers.