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Legislative Analyst's Office Projects $20.7 Billion Budget Problem
On November 18th, the Legislative Analyst's Office (LAO) released a report titled: The 2010-11 Budget: California's Fiscal Outlook. According to the report, the $20.7 billion Budget problem, "consists of a $6.3 billion projected deficit for 2009-10, and a $14.4 billion gap between projected revenues and spending in 2010-11." The vast majority of the new Budget problem, according to the LAO, is the result of several major "solutions" in the recently enacted Budget, that did not pan out as well as additional funding owed to schools. These include:
- The inability to achieve billions of dollars of spending reductions in the prison system and Medi-Cal,
- The inability to sell part of the State Compensation Insurance Fund to generate $1 billion in the 2009-10 Budget Year,
- The loss of a court case involving the state's taking of $800 million in transportation funds in 2009-10,
- A $1 billion increase in the Proposition 98 minimum guarantee to schools, resulting from unique Proposition 98 calculations.
The Legislative Analyst's Office also cautions that additional court cases could make the projected Budget shortfall even higher. Lastly, the LAO forecast "assumes no COLA's or salary increases for state employees through 2014-15," and predicts the gap between "revenues and expenditures will increase to $23 billion in 2012-13, when the state must pay back its loan from local governments under Proposition 1A of 2004."
While the big three revenue sources, Personal Income Tax, Corporate Taxes, and Sales Tax, are down only about $500 million, most of the state's problems are due to the above factors and the admitted gap by the Governor's Administration, when the Budget was revised in July 2009, that the operating shortfall, or the ongoing gap between projected expenditures and revenue, would be about $7.4 billion. The reasons for the shortfall include the use of one time and temporary Budget solutions, including funds borrowed or taken from local government, including property taxes and redevelopment agency funds, which alone exceed $4 billion.
Regarding the issue of providing new revenues for the state's General Fund, the LAO suggests, "the State's fiscal situation is so dire, the Legislature may have to revisit some of the temporary tax increases, including the Vehicle License Fee, and the Dependent Exemption credit," along with a review of current tax expenditure programs offering special deductions and exemptions for businesses etc, "that often have not been shown to be cost-effective."
The Governor will be confronting the issues raised in the Analyst's Fiscal Outlook when he introduces his Budget, probably on January 8, 2010.
Submitted by Mike Dillon & Christina DiCaro, CLA Lobbyists
Posted on November 18, 2009 3:13 PM | Permalink