Analyst Sees $2 Billion Less In Brown Tax 2.0

March 16, 2012 · Posted By John Myers · Filed Under Ballot Measures, CA Budget, Taxes, The Governor 

Governor Jerry Brown is no doubt happy that his modified tax increase initiative has already received its fiscal vetting, less than 48 hours after being formally introduced.

But that vetting doesn't settle on an estimate of how much tax revenue the new initiative will bring in, thus repeating an ongoing disagreement between forecasters that could create some tough politics over how this year's state budget should be crafted.

A fiscal analysis is required of all initiatives, one jointly prepared by the independent Legislative Analyst's Office and the state Department of Finance. Number crunchers have, by law, 25 days to do their work.

The one released Friday afternoon was likely done so quickly because Brown Tax Initiative 2.0 hews so closely to the structure of Brown Tax Initiative 1.0 -- the sales/income tax increase that the governor amended as part of a political truce with the campaign led by the California Federation of Teachers.

Like we saw in Brown Tax 1.0, there's still a healthy disagreement between LAO and DOF experts about how much revenue can be expected. The Legislature's analysts believe the revised initiative will bring in $6.8 billion in its first year, while the governor's advisers pegged the number Wednesday at $9 billion.

The $2 billion disagreement continues in the 2013-14 year and in the remaining years of the temporary tax hikes:

In the following five fiscal years, the LAO currently forecasts an average annual increase in state revenues of $5.4 billion, and DOF currently forecasts an average annual increase in state revenues of $7.6 billion.

The new analysis continues a months long disagreement between the state's top fiscal forecasters, one seemingly rooted in different perspectives on the investment incomes of California's most wealthy taxpayers. Everyone agrees that they hope for some clarity, and narrowing, of their numbers once tax receipts are tallied in April.

As for what the new analysis does to the messaging for Brown Tax Initiative 2.0, the likely answer is not much. For now, at least. Backers will continue to insist it would bring in needed dollars for K-12 schools, higher education, and the overall unbalanced state budget. But the early flourish of stories calling it a $9 billion budget fix will be hard to maintain now that there's a more conservative estimate as part of the official analysis.

And that leads, perhaps, to the still relatively quiet budget debate under the Capitol dome. Legislators continue to hear budget proposals and ideas in various committees (though not as explicitly as GOP legislators would like), but Democrats no doubt realize they may ultimately have to weigh in on the $2 billion revenue debate. If they're ultimately inclined to use a more conservative number, then that means deeper cuts now; if they choose to be more optimistic and that optimism doesn't pay off, it means deeper cuts down the road.

And rest assured that the cuts/taxes narrative will be playing out on two fronts this spring: here in Sacramento through legislative debate and on a street corner near you as someone hawks the new tax increase initiative for voter signatures.

NOTE: Apologies to podcast fans for missing our usual Friday installment of political analysis and smart-alecky-ness. My schedule at the end of the week caused me to be absent from Sacramento during normal podcast taping hours. Stay tuned, though, next week. Not only do we expect a Monday installment to make good on our absence... but Friday's podcast will be very important -- with an announcement about the future, and a grateful thanks from yours truly. --JM


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