California legislative analyst: State likely to get billions less than Gov. Jerry Brown's estimate

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California Gov. Jerry Brown looks on during The Governor's Conference on Extreme Climate Risks and California's Future on December 15, 2011 in San Francisco, California.

Gov. Jerry Brown’s counting on billions more dollars in tax revenues to balance the state budget than the analyst who forecasts revenues for the legislature. That’s one of the key points in a report out Wednesday from the legislative analyst. It could make a big difference in the size of the budget hole lawmakers need to patch.

The Brown Administration estimates that the state will collect about $5 billion more in taxes over three years than Legislative Analyst Mac Taylor forecasts.

“In order to get the gains the administration is forecasting,” Taylor said Wednesday, “it kind of looks like you need pretty good improvement in both capital markets and in housing markets. And we’re not forecasting that in our underlying economic forecast and we don’t really see [the Department of] Finance forecasting that either. So we’re just not sure how they get to their numbers.”

Taylor warns that the administration is overestimating how much the state will collect in capital gains taxes — the state’s cut of profits from the sales of homes, stocks and other assets.

The legislative analyst projects that Californians’ capital gains will total $62 billion this year. The governor’s office anticipates $96 billion. That higher forecast would result in $3 billion more in taxes to balance the California state budget.

The governor’s also projected that the state will net billions more from his tax initiative than the legislative analyst thinks it will — again, based on capital gains projections.

H.D. Palmer with the Department of Finance shrugs off the disparity.

“Some folks have looked at our revenue forecast and they believe our revenues are too low," Palmer said. "Some others believe they’re too high. We happen to think our numbers are just right.”

Palmer says the state’s economists examined wages and other economic data to determine their capital gains projections.

“What we see are that small band of high income Californians who are able to realize capital gains, that’s probably going to be growing at a slightly faster clip than the legislative analyst is forecasting," Palmer said.

On this both offices agree: capital gains taxes are volatile and difficult to forecast — especially on the tail end of a recession.

Last year the Department of Finance projected $4 billion in revenues that didn’t materialize. That forced the state to pull the trigger on an extra billion dollars in cuts to programs and services. If the legislative analyst’s lower revenue estimates for the year turn out to be right, California lawmakers would have to find billions of dollars more in cuts.

"Already, California’s budget is dependent on volatile income tax payments by the state’s wealthiest individuals," said the LAO in the report. "As has become evident in recent years, differing fortunes for these upper-income taxpayers can create or eliminate billions of dollars of projected state revenues."

The report also made sure to note that any kind of fiscal forecasting was "especially challenging right now," adding that "there is considerable uncertainty in the administration’s forecast — as well as our November 2011 forecast — regarding the short- and medium-term path for the economy."

This story has been updated.