An Expiration Date for Forecasts?

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There's a lot of attention focused right now on the state's pending sale of short-term notes to ease a seasonal ebb in tax revenues, and rightly so.

But all of that clamor about the state's gloomy finances again being in deep you-know-what overshadows a different problem: the revenue projections in the new budget are the equivalent of a moldy, squishy tomato you just found in the back of the fridge.

This week, we learned that there's now an approximately $3 billion hole that's opened up in the current budget, perhaps even larger depending on whose estimate you're reading.

And that's where ordinary folks might go: whaa? The budget signed into law only two weeks ago? The one we were told was precariously... but nonetheless... balanced?

Yep. As most insiders knew, that budget's tax revenue projections were way, way out of date.

When the governor released his revised budget on May 14, it projected revenues from the big three taxes -- personal income taxes, sales taxes, corporate taxes -- at a combined $90.5 million in the current fiscal year. When the budget was actually signed into law 132 days later, on September 23, the estimates for those same taxes were... you guessed it... still $90.5 million. And yet, the economic situation was vastly different.

Controller John Chiang's recent tallies tell the tale; general fund revenues in September were $540 million lower than the May revision forecast, and the big three taxes combined were $814 million below that same four (or five) month old forecast.

"The budget ought to have taken that into account," says Fred Silva, a longtime budget watcher who now works with the government reform group California Forward. Silva says this year's record-long budget stalemate brings into sharp focus an issue that should be examined: whether the two existing revenue forecasts -- one completed in December (for mid-January) and one in late April (for mid-May) -- are still relevant in a California economy that's much more fluid.

"You have to have a timely budget if our forecasting cycles are going to remain the same," he said.

Silva says while it's true that recent summer spending battles have also gone long past the July 1 deadline, the economy was more stable then than it is now.

There may be practical reasons why the revenue forecast isn't formally updated, but there's also an undeniably political reason: lower revenues would make it that much harder to strike a deal on a new budget. If it took elected officials under the dome 84 days past the deadline to agree to solutions for a $15 billion problem, how long might it have taken to fix an $18 billion problem? A great example of this was the battle over how much of a reserve the budget had built in, with the final legislative compromise relying, in part, on shrinking the reserve (a reserve that was replenished by Schwarzenegger's line-item vetoes).

There's a big buzz about dedicating next year to fixes in the annual budget process. If so, might someone want to also rethink the decades-old standard of only two full revenue forecasts? Might there need to be a new requirement that a forecast have a shelf life?

"If you go past 45 or 60 days," says budget analyst Fred Silva, "then you ought to do a new forecast."

After all, you're not really going to eat that squishy tomato... are you?

We touched on the revenue issue in this morning's edition of The California Report.

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About John Myers

John Myers is senior editor of KQED's new California Politics & Government Desk. He has covered California politics for most of the past two decades, serving previously as Sacramento bureau chief for KQED News and most recently as political editor for KXTV News10 (ABC) in Sacramento. In 2014, he was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.

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