CDCAN REPORT #188-2011: State budget deficit will be $13 billion by July 2012 says Legislative Analyst Office

LEGISLATIVE ANALYST SAYS CALIFORNIA BUDGET DEFICIT WILL BE $13 BILLION BY JULY 1, 2012

Non-Partisan Analyst for the Legislature Forecasts That Additional Revenue of $4 Billion Hoped For In the 2011-2012 State Budget Will Fall $3.7 Billion Short - Grim News Increases Possibility That State Budget "Trigger Cuts" Could Be Pulled

SACRAMENTO, CA (CDCAN) [Last updated 11/16/2011 10:00 AM] - The Legislature's top budget analyst, the non-partisan Legislative Analyst Office, reported this morning that the State's budget deficit will likely swell to nearly $13 billion beginning July 1, 2012, unless action is taken by the Legislature and Governor.  The grim news almost makes certain that Governor Brown's budget for 2012-2013 will contain more spending cuts when he releases it on January 10th next year - and increases the possibility that the massive State budget "trigger cuts" will be pulled.

What the Legislative Analyst's Forecast Means

• The Legislative Analyst Office forecast of the State's revenues and spending to the end of the current State budget year, which ends June 30, 2012, is critical because it is one of the two maor factors that will determine if State budget "trigger cuts" are pulled, setting off massive automatic spending reductions beginning as early as January 1, 2012.
• Those cuts would include, if the first State budget "trigger cut" is pulled, an additional $100 million reduction in State general fund spending to developmental services and a 20% across-the-board reduction in service hours to all persons receiving In-Home Supportive Services (IHSS), though there are exceptions and maor cuts to higher education. If the second budget "trigger cut" is pulled, nearly $1.5 billion in additional reductions to K-12 education would go into effect, and additional cuts to higher education.
• The other factor to determine whether the State budget "trigger cuts" will be pulled is the forecast of spending and revenues that the Governor's Department of Finance will issue in mid-December.  By December 15th, the Governor's Department of Finance Director will have to make a determination whether or not State revenues - as projected in the 2011-2012 State Budget that was passed and signed into law last June - will come in as hoped for, which means the "trigger cuts" would not be pulled - or if it falls short.
• The Legislative Analyst Office now believes, given the trends in revenues, that the State will fall about $3.7 billion short of the $4 billion in additional revenues the Legislature and the Governor had hoped would come in between July 1, 2011 and June 30, 2012.

State Budget "Trigger Cuts"

• The State budget "trigger cuts" that would - if pulled - implement additional new automatic spending cuts - was part of the 2011-2012 State Budget that was passed by the Legislature and signed into law by Governor Brown in late June.
• Lawmakers and the Governor had hoped that additional State revenues would come in between July 1, 2011 and June 30, 2012 totalling $4 billion - which in turn, avoided the need to make additional spending cuts in June to balance the budget then.
• To add credibility to the forecast of increased revenues - a forecast that some budget analysts and the Republican legislative leadership felt was unrealistic - "trigger cuts" were included, that would be pulled if revenues fell below what was hoped for.

What's Next

• By December 15th the Governor's Department of Finance will release its own forecast of revenues and spending - and from that (and also from the Legislative Analyst Office's report) make a determination whether or not revenues will come in as hoped for. That will determine whether or not one or both of the State budget "trigger cuts" are pulled. The automatic cuts would go into effect on or sometime after January 1, 2012.
• The Governor will release his 2012-2012 State Budget proposal on or by January 10th - that could include additional mid-year budget reductions.  He called also call a special session of the Legislature to deal with the budget crisis - though at this point it is not likely the Legislature will return to Sacramento before January.
• The Legislature is not scheduled to reconvene in Sacramento until January, though that could change if one or both of the State budget "trigger cuts" are pulled.