Stateline Story

Weak Revenues Bode Poorly for California Budget

The first glimpse of California revenues since Governor Jerry Brown signed a new state budget — one that banks on a strong economic recovery and a corresponding windfall in tax collections — suggests that it could be another long year for state leaders.

July revenues were $539 million below expectations, the Los Angeles Times reports . And that was before the federal government's credit rating was downgraded, the stock market fell and congressional leaders agreed to a debt-reduction deal that could produce deep federal cuts in aid to states in the future. Taken together, the flurry of bad news means that California's new budget could be unbalanced very soon.

"Clearly, the events of the last couple weeks have not been good ones," Mac Taylor, California's nonpartisan budget analyst, tells the Times . "It's still early."

California lawmakers and the governor agreed to a budget that assumes an additional $4 billion — beyond what has been forecast — in tax collections over the next year. The assumption was considered rosy on the day the budget was signed into law, but it looks even worse now. "I think a big argument for that $4-billion [assumption] was the stock market and capital gains," Brad Williams, a former revenue forecaster for the state, tells the Times . "A lot of that disappeared in the last week or so."

If California's revenues do not match up with the budget's expectations, automatic cuts in government spending will be triggered, including deep reductions to K-12 education.