On Tuesday, rating agency Standard & Poor's raised concerns about California's budget following lower-than-expected April tax revenues and a recent court ruling that could have fiscal implications, the Sacramento Bee's "Capitol Alert" reports (Yamamura, "Capitol Alert," Sacramento Bee, 5/1).
Background on April Tax Revenues
According to data published by State Controller John Chiang (D), California's personal income tax revenue in April was more than $2 billion below Gov. Jerry Brown's (D) budget expectations. The state received $6.74 billion in personal income tax revenue throughout the month, while Brown had projected that the state would receive $9.13 billion (California Healthline, 5/1).
The Legislative Analyst’s Office last week estimated that general fund revenues were $3.5 billion below projections but later revised its estimate to say that general fund revenues are about $3 billion short ("Capitol Alert," Sacramento Bee, 5/1).
Background on Court Ruling
In June 2011, Chiang announced that he would withhold California legislators' pay because an analysis by his office determined that a spending plan they passed was not balanced.
In January, Senate President Pro Tempore Darrell Steinberg (D-Sacramento) and Assembly Speaker John Perez (D-Los Angeles) filed a lawsuit against Chiang. They said Chiang improperly interpreted a voter-approved mandate -- Proposition 25, passed in 2010 -- that lawmakers' pay be withheld if they fail to pass the annual state budget by June 15.
Last week, Sacramento Superior Court Judge David Brown ruled that Chiang did not have the authority to block lawmakers' pay.
Brown said that Chiang improperly assumed state lawmakers' budget duties. The judge wrote that lawmakers can determine for themselves whether a budget is balanced and that a "contrary result could threaten to undermine the Legislature's essential function" (California Healthline, 4/26).
Concerns Cited by S&P
In its report, S&P said that the two developments "could weaken the state's prospects for further improvement in its fiscal structure."
It said that the court ruling "may open the door for the Legislature to potentially rely on budget maneuvers that may be politically expedient but fiscally unreliable when devising deficit solutions."
However, the agency said California still could improve its fiscal situation despite the developments. In addition, it did not downgrade California's credit rating.
Response to S&P
In response to the S&P's comments, Steinberg said, "We know we have a task ahead of us, and we are prepared to make the tough decisions required to balance a credible budget on time." He added, "The S&P report acknowledges the tremendous progress we have made in tackling the deficit, and there is no reason to assume this year will be any different" ("Capitol Alert," Sacramento Bee, 5/1).