There was a steady drizzle of rain hitting the state Capitol on Wednesday, but in budget terms the sun was shining and a huge rainbow arched its way to the proverbial pot of gold.

A stretch? Perhaps, but the Legislature's nonpartisan budget office isn't mincing words: California's long-term, systemic fiscal crisis is, it seems, over.

(We'll get back to that "it seems" qualifier in a moment.)

"We finally have an economic recovery," said Legislative Analyst Mac Taylor in his unveiling of a new forecast that projects a $5.6 billion surplus by the summer of 2015, growing three years later to almost $10 billion.

It's nothing short of a remarkable comeback from the familiar multi-billion dollar shortfalls that Californians have been hearing about for most of the past decade.

The report by the Legislative Analyst's Office points to two main reasons for such fiscal optimism over the next six years: an improving economy and the final payoff of budget fixes enacted in years past that pushed the obligations into the future (what so many politicians love to call 'kicking the can down the road').

Those IOUs include the deficit bonds championed by Gov. Arnold Schwarzenegger and approved by voters in 2004; it will take until 2016 to pay them off -- resulting in some $1.6 billion in newly freed up cash.

"It had repercussions over many, many years," says analyst Taylor.

If the LAO projections prove accurate, the most immediate winner will be public schools. The state constitutional guarantee for K-12 schools and community colleges is expected to boost school spending by almost $2.7 billion this fiscal year and almost $8 billion above current law by the summer of 2015.

This forecast is the first to make predictions about what California's finances will look like when Proposition 30 expires, the temporary taxes Gov. Jerry Brown convinced voters to approve last November.

Critics of Prop 30 had argued it may only have been a temporary bandage to the state's wounds, but the new LAO report finds surpluses even after its taxes disappear, though much smaller revenue growth than with them.

Now, back to that qualifier about all of this good news on the state budget front.

The LAO report is based on current law; that is, it doesn't make any judgments on what California's fiscal health will look like if legislators start to tinker with the details.

The report also makes clear the surplus estimate doesn't include potential efforts to attack the state's long-term fiscal liabilities, most notably projected shortfalls in paying for public employee pensions.

How all of this potential budget boom will be viewed under the state Capitol dome once legislators return in Januaryis the real question.

The LAO report suggests lawmakers should begin with creating something the state's never really had: a sizable rainy day fund, in the range of $8 billion. But even with that, others will see money that could be used for restorations of social services programs cut over the past several years. Expect pressure, too, from the world of higher education; just last week, regents of the University of California approved a budget that assumes more state cash than Governor Brown -- in attendance at the meeting -- told them they're going to get.

Here's where a history lesson is worth considering. The last real budget bonanza was a short-lived boom in 2006 -- an election year, like 2014. Legislators were eager to erase the gloom in voters' eyes about California's finances, and an incumbent governor was happy to sign a spending plan that doled out more spending.

Like his predecessor, Brown is also facing (assuming he runs) re-election as the budget surplus comes rolling in. This year, he refused efforts by legislators to use more optimistic projections and bigger restorations in previous cuts.

It's a safe bet he'll try to use the same approach next year, but lawmakers now have a forecast that shows the recovery has legs... and that could intensify the debate about how much spending California needs to smartly invest in a shiny future.

John Myers is News10's political editor. Check out his Twitter feed on California politics, his Facebook page, and the weekly News10 Capitol Connection politics podcast.

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