"We have an enormous budget problem, and that's because of the structure of our revenue system, not because of the fundamentals of the California economy," said Thornberg. "California has turned around and taken the volatility of the stock market and made it the central component of the revenue system. There's nothing right about that, because what it means is that we're constantly in either boom or bust."
According to state data, the top 1 percent of Californians account for nearly half of the state's income taxes, which in turn accounts for two thirds of general fund taxes. In recent years, capital gains — taxed in the state like any other income — have represented around 10 percent of California's general fund revenues.
In the governor's May budget revision, the California Department of Finance modeled the potential impact of a recession of "average magnitude" next year. The agency found such a downturn would result in a $55 billion decline in state revenue over a three-year period. To soften the impact of a downturn, Brown has proposed ending the next fiscal year with $8.5 billion in total reserves, or about $4 billion more than the fiscal 2015-16 state budget plan.
"Paradoxically, the moment everybody feels the best is the moment right before a recession is about to hit," Brown remarked this month when discussing the May budget revision. "So instead of pulling back in the last two recessions, the state of California accelerated its spending and therefore made the budget cuts all the more painful."