LAO Questions Revenue Goals in Governor's State Budget Proposal

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On Wednesday, the non-partisan Legislative Analyst's Office released a report stating that Gov. Jerry Brown's (D) recent state budget proposal has the potential to help balance the budget but that there are uncertainties about whether Brown's revenue projections are accurate, the AP/CBS News reports (AP/CBS News, 1/11).

If California lawmakers rely on revenue projections that are too optimistic, more state spending cuts could be triggered (Buchanan, San Francisco Chronicle, 1/12).  

Background

Last month, the Brown administration estimated that revenue this fiscal year would fall $2.2 billion short of projections. Consequently, the state moved forward with $980 million in automatic midyear budget cuts.

Brown acknowledged the deficit in his fiscal year 2012-2013 budget proposal, which estimates the state will face a $9.2 billion shortfall. Brown's $92.6 billion spending proposal for the next fiscal year includes deep cuts to health and human services programs. The budget plan proposes cutting:

  • $946.2 million from CalWORKs -- the state's welfare-to-work program -- by limiting the amount of time most adults could be on the program from four years to two years;
  • $842.3 million from Medi-Cal -- California's Medicaid program -- by merging services for beneficiaries eligible for both Medi-Cal and Medicare;
  • $163.8 million from In-Home Supportive Services -- which provides services for the elderly and people who are blind or have disabilities -- by eliminating domestic assistance for beneficiaries in shared living environments; and
  • $64 million from moving children out of Healthy Families, California's Children's Health Insurance Program, to Medi-Cal (California Healthline, 1/11).

Meanwhile, Brown is aiming to place a November ballot measure before voters that would increase income taxes by:

  • 1% for residents who earn more than $250,000 annually;
  • 1.5% for residents who earn between $300,000 and $500,000; and
  • 2% for residents who earn more than $500,000.

The proposal also would increase the state sales tax by half a cent.

The tax hikes would expire in 2017 (California Healthline, 1/10).

Details of the LAO Report

Brown's budget proposal estimates that California will have $89.2 billion in revenues in FY 2012-2013, while LAO's estimate is about $3.2 billion lower (Harmon, San Jose Mercury News, 1/11).

According to LAO, California's most wealthy residents will receive "significantly less income" this year than the Brown administration projects (Lin, AP/North County Times, 1/11).

If voters approve Brown's tax plan, LAO estimated that the state would collect about $4.8 billion annually. The administration projected that the tax hikes would generate about $7 billion annually.

According to the report, Brown's budget plan faces several challenges because it:

  • Depends on voters' approval of a tax measure;
  • Relies on tax revenue from wealthy residents, a funding source that can vary significantly from year to year; and
  • Requires support from Democratic lawmakers who oppose deeper spending cuts to health and human services and other state programs (AP/CBS News, 1/11).

Brown Administration Response

In a statement, Brown said LAO's analysis "underscores the fundamental uncertainty of our time and, therefore, the financial imperative to be prudent, make the tough cuts now and give the voters a choice on additional revenues" (San Francisco Chronicle, 1/12).

Department of Finance Director Ana Matosantos said that developing budget forecasts in a time of economic uncertainty is difficult. She added that she believes the governor's estimates on revenues from his tax plan are accurate (San Jose Mercury News, 1/11).

Broadcast Coverage

On Wednesday, Capital Public Radio's "KXJZ News" reported on LAO's analysis of Brown's budget proposal (Adler, "KXJZ News," Capital Public Radio, 1/11).

Editorial, Columnist Weigh In on Governor's Budget Proposal

An Orange County Register editorial argues that when Brown unveiled his FY 2012-2013 budget proposal last week, he contradicted himself by calling for a 7% increase in general fund spending while acknowledging that the state faces a "wall of debt, pension liabilities, other increasing annual obligations and potential cost increases associated with the federal deficit."

The editorial adds that the governor's budget plan "is based on having money the state probably will never receive. Part of it is the $7 billion in new taxes he wants voters to approve in November but some of it is in the form of rosy revenue projections" (Orange County Register, 1/11).

While Brown has described California as facing "a wall of debt," Sacramento Bee columnist Dan Walters writes that "California's debt, much of it run up over the last decade, is more like a mountain."

According to Walters, "Brown's budget pegs the state's pension debt at $45.2 billion and retiree health care at $59.9 billion, but independent estimates of the pension gap have ranged as high as a half-trillion dollars" (Walters, Sacramento Bee, 1/10).


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