Missing the Mark: Mid-Year Cuts Appear Likely
Familiar budget-battle-lines were reignited shortly after the Legislative Analyst’s Office produced its annual forecast of the state’s financial position. Ever since Governor Brown signed the state budget, it has been a countdown of sorts for any sign that the state would be able to avoid a $2 billion trigger cut provision. But the state’s poor economic outlook dashed the rosy projections practically from the outset due to recurrently lackluster revenues. While it is not yet clear whether the trigger cuts will ultimately be pulled (or if pulled, how much will be cut), it can’t be ignored that the state will take in $3.7 billion less revenue than the budget estimated. Speculation about revenue streams has now shifted to speculation about the extent to which the trigger mechanism will impact state programs.
Overall the LAO has posited that the state's deficit will be nearly $13 billion through June 2013. The report concisely states: “The remaining work of eliminating the state's persistent, annual deficit will require more difficult cuts in expenditures and/or increases in revenues.” It was estimated that the state would take in $88.5 billion in revenues, but the LAO has concluded revenues will only amount to $84.8 billion—hence the figure that the state will fall $3.7 billion short of the $4 billion officials were hoping to receive in order to close the budget and avoid mid-year cuts.
The revenue shortfall is supposed to translate into $2 billion in trigger cuts to K-12 schools, higher education, and social services, but while the governor’s administration is now acknowledging that some cuts will be necessary, they are not committing to a precise number and will gather further details come December. On December 15th the Department of Finance will release its final revenue projections, and its report will be a major factor in deciding cuts. The Department’s revenue forecast carries more weight in the end when it comes to determining if the trigger will be pulled.
City revenues may not be directly affected by the trigger cuts, but local officials have reason to worry about the consequences of cuts to items like education and social "safety net" programs. Unsurprisingly, the prospect of mid-year cuts propelled debate once again about how the state should tackle its deficit, with Democratic leaders calling for tax hikes and Republicans disagreeing with that assessment and criticizing the shaky budget that Democrats passed on their own. The LAO has pointed out that legislators knew it was risky to patch together a budget based on such a rosy revenue forecast and the consequences are rearing their ugly head this winter.
