Assembly budget officials expect California to face a deficit of about $5 billion to $8 billion next fiscal year, higher than the $3.1 billion projected by Gov. Jerry Brown, according to a legislative memo obtained by The Bee.
The memo itself doesn't explain why Assembly officials believe the deficit will be larger than once projected, but one budget source said it was due to a variety of factors such as uncertainty over legal challenges, additional demand for public programs and a less optimistic view of the economy in the next fiscal year.
At the same time, the "Budget Recap" from Assembly Budget Committee Chairman Bob Blumenfield, D-Woodland Hills, downplays a first-quarter lag in tax revenues of more than $650 million.
To help balance the budget last summer, lawmakers and Brown optimistically decided the state would receive $4 billion in additional revenue in 2011-12. If budget experts determine in mid-December that the state will fall at least $1 billion short of that mark, the state must impose so-called "trigger" cuts to social services and possibly education, depending on the depth of the shortfall.
The Assembly memo blames the first-quarter shortfall more on accounting than economic problems. It suggests that Brown's Department of Finance assigned monthly shares of the $4 billion too heavily for the first few months of the fiscal year. Finance "has made clear that they actually expect the vast majority of the $4 billion will come in through estimated payment and final returns in the months of December through June," the memo notes.
Assembly aides believe that the economy has stabilized since late summer, pointing to an exceptionally strong stock market in October and an improvement in gross domestic product estimates.
That interpretation suggests Assembly Democrats are optimistic the state will avoid some or all of the trigger cuts. The state will make that determination in mid-December after the Department of Finance and the Legislative Analyst's Office release separate revenue forecasts for the remainder of the fiscal year.
The memo warns that "these facts alone certainly do not mean we are out of the woods on the trigger. Whether the trigger is pulled will have much more to do with the subjective forecast for the second half of the year, than the objective data that we have in hand now." (Emphasis contained in memo.)
Controller John Chiang said Wednesday he thought the Department of Finance and the Legislative Analyst's Office would make honest assessments about the second half of the fiscal year, rather than use an optimistic approach just to avoid trigger cuts. "I don't think they're going to do that, just project $4 billion into the future. I think they have to state, 'We think that unemployment is going to decrease,' and perhaps, 'We see some stability that's going to trigger more (public stock offerings).' "