The Legislative Analyst’s Office has released a budget forecast estimating that California’s revenue will fall $6.5 billion short of what Governor Jerry Brown projected in his fiscal year 2012-2013 budget proposal, even with the Governor’s proposed tax increase and even counting a $2 billion windfall from Facebook’s big stock sale. California’s heavy reliance on volatile capital gains income has become a significant reason why the state has found it so difficult to budget in recent years.
The Governor had proposed a budget to close a $9.2 billion deficit, but the LAO has suggested that a combination of overly optimistic revenue projections, unknown tax revenue data, and basic overspending could mean the deficit is higher than anticipated.
The Governor’s proposed tax initiative is the cornerstone of his 2012-13 budget plan, which includes proposals to restructure education finance, reduce social services and child care programs substantially, and implement trigger cuts–primarily affecting schools–if voters do not approve the tax measure.
More information will be available by the end of April when large amounts of income tax payments are received by the state and refund payments are made. Without sufficient revenue, the Legislature would need to cut much more deeply into the spending side of the budget ledger to produce a balanced budget–even with the assumed new taxes.
Due to this unpredictability, the Legislative Analyst’s Office’s office explicitly recommends that the Legislature wait until the Governor receives his budget in May before writing the 2012-2013 budget.
Aside from the usual budget contretemps and the volatility of the tax structure, California faces an election year with new district boundaries and a new top-two primary to throw everyone, incumbents and candidates alike, into a hand-wringing mess when it comes time for difficult budget decisions. The June primary is just 10 days before the June 15 constitutional deadline for a budget. For more information contact Kate Klimow, Vice President of Government and Community Affairs.