Capitol Alert Breaking

Fiscal analyst’s estimates for general fund revenue $2.5 billion higher than governor’s

The Legislature’s nonpartisan fiscal analyst Friday estimated that state general fund revenue through next June will be $2.5 billion higher than what Gov. Jerry Brown predicted in his revised spending plan earlier this week.

The estimates by the Legislative Analyst’s Office are sure to bolster complaints by liberal advocacy groups and their allies among the Legislature’s majority Democrats that Brown’s plan does too little to ease recession-era spending cuts, even with state finances in their best shape in years.

Presented earlier this week, the Democratic governor’s $156.2 billion revised budget assumes that state revenue through June 2015 will be $2.4 billion above January estimates. Friday’s report, though, pegged the increase at double that – nearly $5 billion – with the analyst taking a more bullish outlook on the stock market.

Yet the analyst’s report cautioned that much of the additional revenue would be consumed by larger obligations under the state’s constitutional school-funding guarantee. It also acknowledged that its higher revenue numbers, most of which are based on volatile taxes on capital gains, might turn out to be wrong.

“If the markets stay where they are, we just think it’s more logical to assume that there’s going to be more capital gains income,” Legislative Analyst Mac Taylor said. “Could we be wrong? We could be wrong about either the assumption about where the markets are, or how that translates into revenues.”

The interplay between the extra revenue and the state’s school-funding guarantee known as Proposition 98 would leave about $500 million for lawmakers “to allocate for whatever purpose they thought was best,” Taylor said.

Brown’s revised proposal includes a 30-year plan to close a $74 billion shortfall in the teachers retirement system. It also reflects the creation of a rainy-day reserve meant to sock away money in good years to ease the impact of spending cuts when revenue drops. Brown “deserves much credit” for a plan that “takes a careful approach to state finances,” the analyst’s report said.

The Legislature’s Democratic leaders were noncommittal Friday after the release of the analyst’s report. Both houses will convene budget hearings next week. The deadline to adopt a budget is June 15, with the fiscal year starting July 1.

Brown’s office did not question the LAO’s higher revenue estimates. “As the analyst points out, if those revenues materialize, virtually all of it would be dedicated to education, and therefore constitutionally not available for other general fund spending,” Department of Finance spokesman H.D. Palmer said.

Senate Republican Minority Leader Bob Huff, meanwhile, urged legislative Democrats to avoid new spending and to follow the “smart growth path laid out by the governor to ensure balanced budgets.”

Besides general fund revenue, Taylor’s office predicts that property tax revenue will be higher than what the governor’s plan estimates. Although property tax money stays at the local level, the extra estimated $700 million in revenue predicted by the LAO would reduce the state’s school-funding obligations.