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taylor.jpgLegislative Analyst Mac Taylor projected state revenues Friday that are $3.2 billion higher than those projected by Gov. Jerry Brown this week in his revised budget proposal.

The difference translates into $400 million for the current fiscal year and $2.8 billion for the year that begins in July. The projection sets up a potential battle between Brown and fellow Democrats in the Legislature. who want to spend more than he proposes.

Both Brown and Taylor urge fiscal restraint, however, because revenue projections are largely dependent upon economic factors ranging from employment to housing prices. Both also agree that the bulk of the money will go to schools under state law.

Brown, in his new proposal, had lowered projected revenues by $1.8 billion from his January estimate.

Though tax revenue has run about $4.5 billion ahead of projections through April, Brown said much of that money is unlikely to carry over into future years.

The Democratic governor attributed much of this fiscal year's tax windfall to wealthy taxpayers shifting income from 2013 into 2012 to avoid higher federal tax rates.

Revenue projections are pivotal for crafting a budget deal with Democratic legislative leaders, who face heavy pressure from social service advocates to restore key safety net services slashed during California's budget crisis.

Assembly Speaker John A. Pérez, in a written statement, said that the LAO"s projections are consistent with his own expectations. He vowed to work with the Senate and Brown's office to craft a "responsible budget."

"No one should interpret these figures as an automatic green light to increase spending, but rather to pay off debt, build the reserve, and strengthen the middle class - key principles of our (Assembly budget blueprint)," Perez said of the LAO's analysis.

The gap in revenue projections between Taylor and Brown is due partly to differing views of California's near-term economic prospects and partly to the LAO accounting for sharp recent increases in stock prices.

"The administration's forecast does not take account of this trend," Taylor's report said.

Even if the $3.2 billion in additional revenues proves accurate, Taylor said that Proposition 98 assures that schools would receive all but several hundred million dollars, at most.

The LAO report added that there is no certainty in its revenue projection.

"There is a risk that our outlook will prove wrong in the near term because capital gains are volatile and stock trends are impossible to predict," the report said.

Taylor suggested a "cautious budgetary posture" that does not commit unexpected revenue to ongoing programs.

"After years of 'boom and bust' budgeting, California's leaders now have the opportunity to build a budget for future years that gives the state more choices about how to build reserves in times of healthy revenue growth, prioritize future state spending and pay off past debts," Taylor's report said.

The LAO also suggested that "this is an ideal time" for the Legislature to begin addressing its huge budgetary and retirement liabilities, including funding problems of the California State Teachers Retirement System.

The Brown Administration released a finding by the Fitch Ratings firm that applauded the governor's "disciplined approach to fiscal management."

The ratings agency called Brown's estimates a "prudent revenue forecast" and concluded that his revised budget proposal calls for "restrained spending growth."

PHOTO CREDIT: Legislative Analyst Mac Taylor, in 2011. Hector Amezcua/The Sacramento Bee.



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