California is in the Red - Again


State Controller John Chiang delivered bad news last week when he reported that the state is collecting much less in taxes than expected so far this year, and warned that mid-year trigger cuts to social services and higher education appear more likely to happen.

Chiang announced that, for the first four months of the fiscal year, California has collected $1.5 billion less in revenue than anticipated.  Tax revenue for the month of October was short nearly $811 million.

Some state financial officials say it is too soon to predict whether trigger cuts will be needed.  The trigger cuts are scheduled to happen automatically January 1 if revenue is projected to fall short by $1 billion for the entire fiscal year, according to the budget legislation signed by Governor Jerry Brown last June.

The University of California and California State University systems would each lose $100 million in state aid.  The In-Home Supportive Services program and the program overseeing people with disabilities would also lose $100 million each.  A second round of trigger cuts, affecting K-12 public schools and community colleges, would occur if that projected shortfall increases to $2 billion.

But the "projection" term is key: It refers to what financial officials predict will come into the state treasury by June 30.  That prediction will come over the next two months through a forecast produced as soon as next week by the Legislative Analyst's Office, and the Department of Finance's forecast, which will be made public in December.

The decision of whether the trigger cuts take place will ultimately be made by the Director of the Department of Finance on or before December 15th.  In the closing days of budget negotiations last June, Brown projected that an additional $4 billion of revenue would come to the state, but he demanded the triggered cuts if that money did not materialize.

In total, the budget is based on the state receiving $88.4 billion this fiscal year.

Chiang acknowledged that the fiscal year is only a third over, but he said shortfalls on the front end don't help.

In addition to the shortfall, Chiang said that the state has spent $1.7 billion more than budgeted so far this year, though he said there may be a simple explanation for that.  It may be due to the timing of when some payments were made, such as a payment scheduled for early November that actually went out in late October, but Chiang said that is something he is still trying to determine.  He said if the payment "was something unforeseen or not in the normal trend, then that's a matter of great concern."

Financial experts say that is also important to realize that forecasting the month-to-month revenue has become increasingly difficult because of both the fluctuations in the economy and changes in tax laws the state has made the past few years.  Those include allowing corporations to decide between two methods to calculate what they owe in taxes and moving up due dates on some collections to bring cash into the state's treasury more quickly to stave off IOUs or other drastic measures.