California's budget gap is back, but smaller

10:04 PM, Nov 14, 2012   |    comments
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The Legislature's independent budget analysts offered a good news, bad news view on California's fiscal health on Wednesday... projecting positive signs on the horizon but a $1.9 billion shortfall between now and the summer of 2013.

"If you think about the next two years," said Legislative Analyst Mac Taylor on Wednesday, "we think the state's budget position is going to be pretty constrained."

Taylor's nonpartisan policy shop unveiled its annual fiscal forecast, projecting a bit of both good and bad news for a state budget that's been almost nothing but bad news since 2008.

In particular, said Taylor, the existing fiscal blueprint means continued tough times for programs outside of California's constitutional K-14 education funding guarantee. In other words, health and human services programs that have already been cut deeply to balance previous budgets.

Funding for public schools and community colleges, while no means robust, are expected to see some tangible benefits from an improving economy and the new tax dollars generated by Proposition 30 and Proposition 39.

(Prop 39 isn't one you heard much about during campaign season in state budget terms.  Its change in corporate tax rates will mean more money for the state's general fund which, in turn, guarantees more cash for schools.)

But once lawmakers resolve the state's budget problems through the summer of 2014, the new forecast by the Legislative Analyst's Office (LAO) predicts relatively robust revenues will push the state into the black, resulting in a surplus of more than $9 billion by the middle of 2018.  Those numbers, like all the predictions of expenses and budgetary bottom lines, are based on existing law -- which means lawmakers can, and certainly will, tinker with the fine points in the coming months and years.

A handful of factors in the LAO analysis reinforce what Capitol watchers know all too well: state budgets, for better or worse, are not really analogous to a family's finances.

For starters, the new report points out the short-term budget gap could have been much deeper, if not for an unusual last-minute report from Gov. Jerry Brown's team at the state Department of Finance.

Brown's budget crunchers reported a $1.4 billion accounting change just eight days ago -- a change that had the effect of lowering the projected deficit by the same amount.  Thus, absent the adjustment, the LAO report would have projected the state budget gap at $3.3 billion.

The accounting move is part of how state government scores its revenues, which involves counting those dollars as part of the year in which they were earned or generated... even if that year is, in real time, a long time in the past.  The tax revenue information released by Brown's budget team on November 6 effectively lowered previous fiscal shortfalls, thus lowering the existing year's problem... and resulting in a $1.9 billion deficit going forward.

Confused? You're not alone.  Department of Finance officials say most of that previously earned $1.4 billion was in personal income taxes, and they admit it was a larger-than-normal rejiggering of revenue data.

The LAO's projection of a new deficit also relies on other not-counted-on happenings: less budgetary savings from this year's elimination of redevelopment agencies, and lower capital gains expectations from Facebook employees' stock options.  The latter has been anticipated for months, given how low Facebook's stock price ($22 a share) is when compared to the June budget assumption ($35 per share).  The net loss of expected revenue, says the LAO report: $626 million.

The new budget gap means the bumper crop of freshman legislators (now in Sacramento for orientation briefings), along with returning veterans and the governor, will be faced with a few extra nips and tucks in a budget many believe has already been scaled back substantially over the last few years.  And that again raises the question of which budget tools the Legislature's newly christened Democratic supermajority will choose to wield.

Will it include tools that add money to the till? And will Brown bless the use of these tools, even as he's pledged to take all "new taxes" to a vote of the electorate?

The answers to those questions won't start to become clear until after the governor unveils his own ideas on a spending plan in two months.


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