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Gov. Jerry Brown's budget would help California bring its spending in line with revenues over time, but it relies on volatile income and may contain welfare cuts that are "too severe," the state's top fiscal analyst said Wednesday in his first review.

The Democratic governor released a $92.6 billion general fund budget last week that includes health and welfare cuts while relying on voters to pass a $6.9 billion increase of income taxes on the wealthy and sales taxes. He also outlined an alternative path if the taxes fail that would reduce school program funding by $2.4 billion, about 5 percent.

Legislative Analyst Mac Taylor, in a press conference today, emphasized the wide divide between his tax projections and Brown's. Dating back to 2010-11, Brown is more optimistic by $3.9 billion. If that gap holds, Taylor noted, eventually lawmakers and the governor will have to find more revenues or cuts than Brown proposes.

They disagree mostly over how much Californians will receive in capital gains. The governor's Department of Finance believes taxpayers will reap $96 billion in 2012; the Analyst says it will only be $62 billion, a $34 billion difference. That translates into a $3 billion tax revenue swing.

"I think what we're concerned about is that the capital gains assumptions the administration is making is a little bit optimistic," Taylor said.

"At this time we're really not asking the Legislature to do anything in particular about it," he added. "It's a little bit more, I think, waving the cautionary yellow flag that there is in our view more downside risk to the administration's numbers."

Department of Finance Director Ana Matosantos responded in a statement, "As both we and the Analyst's office have indicated, revenue forecasting during this time of economic uncertainty is difficult ... While some have commented that our revenues are too low and others have said they are too high, we believe they are just right."

Taylor's report suggests that Brown's $1 billion cut in the welfare-to-work program may have some merit in emphasizing work. But he warned that scaling back aid as dramatically as Brown wants may be "too severe."

The governor's proposal drops aid to parents who fail to find jobs after 24 months, rather than the current 48 months. It also would restrict child care access to those making the equivalent of about $37,000 for a family of three, down from about $42,000.

The analyst also warned that because of the way school districts build their budgets, the governor and lawmakers need to be mindful that they may install program cuts this summer before voters have a chance to decide on taxes.

"This means schools in '12-'13 likely will implement most, if not all, of the reductions that many hope to avoid," he wrote. "Given this possibility, the Legislature needs to be very deliberate in structuring a workable trigger package."

Story has been updated with quotes from the Legislative Analyst's press conference and the Department of Finance. Child care income thresholds have been corrected to reflect state median income rather than federal poverty level calculations.



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