Capitol Alert

Jerry Brown’s budget probably understates California revenue, analyst says

Gov. Jerry Brown proposed his budget Tuesday, Jan. 10, 2017. The Legislative Analyst’s Office said the governor’s personal income tax estimates are probably too low.
Gov. Jerry Brown proposed his budget Tuesday, Jan. 10, 2017. The Legislative Analyst’s Office said the governor’s personal income tax estimates are probably too low. rpench@sacbee.com

Gov. Jerry Brown’s proposed budget for the year beginning July 1 probably understates California income tax collections by billions of dollars, the Legislature’s non-partisan fiscal analyst said in a report Friday.

The spending plan released Tuesday projected that the state would face a nearly $2 billion shortfall without changes. Some costs have increased, but the main reason for the gap is the administration’s conclusion that revenue from the state’s three main taxes will be $3.2 billion less through June 2018 than was assumed when lawmakers approved the current budget last June.

“The downturn is inevitable,” Brown told reporters Tuesday.

The analyst’s office, though, said Friday there is little sign that such a downturn is imminent. The 3.3 percent growth in personal income tax collections projected in Brown’s budget for 2017-18 is well below the norm for a typical growth year, the LAO said.

That growth rate also is less than one-half the 8 percent average income tax revenue growth from 2009-10 through June 2017, and less than the income growth rates in the past 18 non-recession years. In addition, the report noted that Brown’s proposal assumes a healthy stock market, yet projects that capital gains revenue for California will decline in 2017.

“We cannot reconcile these conflicting projections,” the LAO wrote.

The analyst’s office and Brown are on the same page regarding uncertainties about the economy’s future and possible federal government actions. The Legislature, Friday’s report said, may want to increase the state’s total reserves to the $9.4 billion proposed by Brown, or even more.

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