Legislative Analyst Close to Schwarzenegger on Budget Revenue and Expenditure Projections But Rips Him on Lottery and Solutions

[courtesy of California Progress Report]

By Frank D. Russo

Burning the midnight oil since the release on Wednesday of Governor Schwarzenegger’s proposed “May Revision” of the California budget, the Legislative Analyst’s Office has released just hours ago a 30 plus page report that has good and bad news in it for the Governor. Elizabeth Hill, the analyst who is often referred to as “the budget nun,” is now testifying before the legislature on her report and taking questions.

There’s a lot here, but the bottom line is that the LAO agrees pretty closely with the revenue estimates and expenditure estimates used by the Governor. She says that the Governor’s proposed lottery securitization and sale tax trigger presents “significant risk” and debt and proposes a “slimmed down and more responsible lottery plan” of her own that she says is much less risky for education. She criticizes the Governor’s long term budget reform proposal as locking in the shortfall, threatening legislative authority, and complicating the budget.

This report shows the reasons why the budget deficit has grown—mostly due to a further worsening of the economic outlook and consequently the revenue the state receives. Revenue for next year’s budget has deteriorated by $6 billion from what was thought in January and expenditures have increased by $1.7 billion over what was assumed. She breaks down how the slowing economy has affected different types of revenues--from the sales and use taxes, to corporate taxes, the personal income tax, and other revenues and transfers.

The LAO details the recession we are in and provides a pretty good summary of what the state is going through economically. Dealing with a $100 billion plus a year set of revenue and expenditures the state is trying to estimate, she feels the revenues would be $300 million less than the Governor and that the expenses he is assuming. She also is of the opinion that the spending he proposes is $250 million more than the Governor assumes. This is really pretty close.

The deficit is about $15 billion and the Governor’s reserve would be about $1.5 billion rather than the $2 billion he was seeking. But the budget would be out of balance if the sales tax is triggered—an even that would happen if the lottery deal fails to produce the income for whatever reasons or delays.