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Teachers, students and their parents participate in an education budget cuts rally and protest at Pershing Square on May 13, 2011 in downtown Los Angeles, California.
California has taken in less revenue than expected for the fiscal year that began three months ago, bringing the state closer to the possibility of trigger spending cuts to higher education and caregivers for the elderly and disabled.
Gov. Jerry Brown must have an updated fiscal forecast by December, when the governor will make a decision about whether the first tier of the pre-approved cuts will occur. This first tier, which would go into effect Jan. 1, would include $100 million in cuts from both the University of California and California State University budgets, community-college fee increases of $10 per class unit and $100 million in cut from in-home services for about 450,000 elderly Californians.
H.D. Palmer, deputy director for external affairs at the California Department of Finance, told KPCC’s Patt Morrison that if the revised revenue forecast is a billion dollars or less than previously projected, “then trigger cuts aren’t pulled, show’s over, drive safely, see you in January.”
On the other hand, if the revised numbers forecast $2 billion fewer dollars in revenue for the state, a second tier will spring into action, resulting in an additional 1.9 million in cuts to California’s budget.
Controller John Chiang, the state’s chief fiscal officer, announced yesterday that in September alone, the state fell $301 million short in revenue. He explained, “September’s revenues alone do not guarantee that triggers will be pulled. But as the largest revenue month before December, these numbers do not paint a hopeful picture.”
Palmer pointed out that numbers were skewed due to a payment of $120 million scheduled for mid October that was instead paid at the end of September.
“That had the effect of bringing down September’s numbers,” he said. “If that check was cut on a Monday instead of a Friday, it would be a different picture for sure.”
Palmer also said that the state pays the bulk of its bills during the first part of the year, but gets the bulk of its revenue in the second half. He cited the controller’s numbers, and said that though corporation taxes for September were around 190 million below forecast and sales and use taxes were down by $57 million, personal income tax came in at $285 million above what they had projected.
When legislators passed the budget in June, it appeared the U.S. economy was picking up. But since then, the debt crisis in Europe and Washington’s impasse over the debt ceiling have slowed economic growth. Kevin Klowden, managing economist and director at the California Center at the Milken Institute told KPCC’s Patt Morrison that psychology played a part in the economy’s loss of momentum.
“California has actually been adding jobs, which helps overall income numbers, but it hasn’t recovered so quickly that people really feel better. So that when they see the news coming out of Europe and they see the stock market, there’s real concern with overall spending levels and concerns with corporate income that tie into that,” he said.
Klowden said that California is much more dependent than on international trade and investment than other states in the country, and while “it’s still a great strength, it just means we’re more vulnerable to the global economy.”
Klowden also said the fact that headlines aren’t telling of another major U.S. crisis or foreshadowing a European meltdown has eased people’s anxiety. Palmer said that he’s optimistic.
“There a lot more data that has to come through the door before anybody, with any certainty, can make a determination as to what the revised revenue forecast is going to be. What we can say is we’re still in the early innings,” Palmer said.
Will California employment and income increase enough by December to avoid cuts? If not, will Brown decide to go ahead with the cuts or will opposition from Californian voters make him think twice?
H.D. Palmer, deputy director for external affairs, California Department of Finance
Kevin Klowden, managing economist and director, California Center at The Milken Institute