Gov.-elect Jerry Brown will face a massive $25.4 billion budget shortfall next year - twice as large as legislative leaders were anticipating - according to a new projection from the nonpartisan Legislative Analyst's Office.
California faces another major budget problem because tax rates are slated to drop next year, the federal government will provide far less relief to states, and state leaders enacted a flimsy fiscal plan last month.
Of the $25.4 billion, $19.3 billion is projected for the 2011-12 fiscal year that begins in July. The remaining $6.1 billion is due to overly optimistic assumptions in the current 2010-11 budget plan.
The latest deficit is several billion dollars larger than last year's problem, which led to the longest budget delay in state history. Lawmakers and Gov. Arnold Schwarzenegger did not enact the budget until Oct. 8, the 100th day of the fiscal year.
The current $86.6 billion general fund budget relied on $5.4 billion in new federal aid, a figure that was considered wildly optimistic before the governor signed the budget plan.
Sure enough, the LAO believes the state will only receive about $1.9 billion of that money, $3.5 billion less than expected. At the same time, the analyst's office believes the state won't save $820 million in prison health care reductions, nor will it get $200 million from population reductions. By passing Proposition 22, which protects local government funds, voters also saddled the budget with a new $800 million problem.
The latest analysis means the LAO thinks nearly one-third of the $19 billion in solutions state leaders enacted in October will fall apart.
As for the 2011-12 budget year, state leaders knew big problems were on the horizon. To help solve the budget in February 2009 in the midst of the recession, the Legislature and Schwarzenegger approved temporary tax hikes on income, vehicles and sales that were scheduled to end in 2011.
The additional taxes were worth about $8.3 billion annually, according to the LAO. Those revenues will be gone in the 2011-12 fiscal year under current law.
At the same time, the state is relying on $4.5 billion in federal funds this year to help bolster its budget. That money is expected to go away in 2011-12 as well.
Beyond that, the state has faced an ongoing $5 billion to $6 billion gap between what it spends and what it receives.
Brown must propose a new budget in January days after being sworn into office as governor. Among his campaign promises: no tax hikes without voter approval.
The incoming Democratic governor will face significant challenges in balancing a $25.4 billion shortfall without new tax revenues. That deficit represents nearly 30 percent of the current general fund spending plan.
Senate President Pro Tem Darrell Steinberg, D-Sacramento, said last week it is likely Brown will call a special mid-year budget session to tackle the problem. Former Gov. Gray Davis suggested last month that lawmakers may have to seek an extension of the higher tax rates through a special election next spring.
But Brown indicated last week after he defeated Republican Meg Whitman that taxes are an unlikely first option. He interpreted the defeat of Proposition 21 - an $18 vehicle surcharge to pay for state parks - as reflective of the voters' antipathy toward paying more money to the state at this time.
Democrats won some flexibility at the November ballot in Proposition 25, which allows them to pass a spending plan on a majority vote. Yet they still need a two-thirds supermajority to approve taxes. Voters also put two new restrictions on the Legislature's budgeting powers: state leaders cannot take funds from local government accounts, nor can they pass fees or certain tax maneuvers on a majority vote.