11.24.09: Silver Linings in LAO Forecast
By David Walrath
While the Legislative Analyst’s Office (LAO) has painted a gloomy picture of the next two years for state General Fund revenues and Proposition 98 funding, the Department of Finance and Franchise Tax Board have a less gloomy view for 2009-10.
The Department of Finance confirmed the State Controller’s revenue numbers which show an increase in the state General Fund revenues from the proceeds of taxes compared to the estimates made when the 2009-10 budget was adopted in July. While this increase does not fully restore the General Fund revenues and the losses that occurred in July, August and September, it does reduce the amount of red ink in the state General Fund to about $600 million.
Additionally, the Franchise Tax Board has reported that taxes owed, but not paid, have increased by approximately $400 million in the first three months of 2009-10. This $400 million will eventually have to be paid and is not showing in the Department of Finance or Controller’s revenue numbers. If the $400 million were counted, the state would be very close (within $200 million) to the state General Fund revenues from proceeds of taxes that were included in the final budget agreements, as adjusted after the May Revision.
The LAO estimated an additional $1.5 billion loss from tax revenue, but even with that estimate they predicted a $1 billion increase in 2009-10 Proposition 98 obligation. If the economy has bottomed and is starting to grow better than the LAO predicted “sluggish” growth, then the Proposition 98 obligation for 2009-10 could increase by an additional $800 million to a total of $1.8 billion more owed to schools in 2009-10 and thereafter.
This most recent data, as well as some of the national data, indicating that the recovery could be potentially sooner in California than previously expected and, in the nation, a stronger economic recovery than previously anticipated can give a glimmer of hope that the budget problems for 2010-11 will not be as severe as presented by the Legislative Analyst’s Office.
