Budget Revenues Already Shaky

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If Governor Jerry Brown's first budget is going to survive without even deeper cuts to schools, health care for the poor, and public safety, things are going to have to get a lot better than they were in July.

And fast.

Newly released receipts show the state missed the mark for revenues in July by $538.8 million, a 10.3% over-assumption in the budget Brown signed into law on June 30.

Controller John Chiang's July cash report could be the first real evidence that the budget deal was predicated on a particuarly "rosy scenario" for the economy. It also significantly raises the specter of additional cuts using the so-called "trigger" mechanism contained in the new budget.

First, though, the numbers (which you can see either as a PDF summary or in full form on Chiang's website). The state took in more personal income tax revenue than expected (+$89 million, +2.9%), but much less sales tax revenue (-$139.4 million, -12.5%) and corporate tax revenue (-$69.5 million, -19.3%).

The total revenues for the month were about $40 million more than what was collected in July 2010. And there's the problem: lawmakers balanced the 2011-12 budget on the assumption that revenues would be much better than the year before, not just a little better.

"While we hope for better news in the months ahead, every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year," said Controller Chiang in a written statement.

And there's not much time to make up the difference. While Brown and his budget team agreed on upping revenue projections by $4 billion for the year, they pushed for the "trigger cuts" to kick in at much smaller levels of imbalance... and... for the "trigger" to be "pulled" in January.

If revenues are off by more than $1 billion, the package of cuts totals $601 million. Funding for UC, CSU, state developmental and in-home supportive services would be each cut by an additional $100 million; community college fees would go up an additional $10 per unit; new cuts would be made to subsidized child care ($23 million); provider rates would be cut and co-pays increased for Medi-Cal ($15 million); and higher fees would be charged to counties sending juveniles to state facilities ($72 million).

That's just a few of the first cuts (see entire list on page 5 of this PDF). These are also the cuts enacted by a gap of only $1 billion -- a projection that the state is already halfway toward hitting after only one month of the fiscal year. If revenues miss the mark by more than $2 billion, the additional cuts would hit K-12 schools.

To be fair, the controller's analysis doesn't see the weak revenues of July as continuing throughout the year. On the contrary, Chiang's staff says that consumer spending and personal income "should pick up in the second half of the [fiscal] year."

But again, the problem is that the state budget is built on strong revenues now, not later. And the governor's budget director will have to assess how the projections meet up with reality in December... some three months from now... and then make the call on those cuts.

Update 4:18 p.m. The governor's budget spokesman, H.D. Palmer, cautions against reading too much into the controller's cash analysis. For starters, Palmer says that data from various state agencies may soon show that not all of the revenue failed to materialize -- thus, the July shortfall may be smaller. He also says that December's big "trigger" determination will not rely simply on cash collected to date... but allows a new projection for the rest of the year. Translation: the state could be more than $1 billion short in actual cash at that point, but finance officials -- if they believe the shortfall will be made up before July 1, 2012 -- could still not pull said trigger.

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About John Myers

John Myers is senior editor of KQED's new multimedia 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. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.
  • Jennifer Burgess

    Here’s a wild idea: How about we deport every freaking illegal alien in the state? We’ll save billions, in everything from paying for their emergency room visits to not having to educate them.