Copyright© 2007 by School Services of California, Inc.

                                      Volume 20                   For Publication Date: January 19, 2007             No. 2

Legislative Analyst Critiques Governor’s Budget 

In a press conference on January 12, 2007, Legislative Analyst Liz Hill summarized her office’s initial review of the Governor’s Budget. She began her briefing stating that not all of the savings in the Governor’s plan will materialize because of numerous optimistic assumptions and risky legal and policy issues. The downside risks could exceed $2.1 billion, which would eliminate the proposed Budget reserve. She advises the Legislature to “develop a more realistic budget” that would remain balanced and avoid raising ongoing commitments. 

Some of the key risks identified by the LAO include the following: 

·                    Revenues—The Administration’s revenue forecast is $641 million above the LAO’s latest projection, yet the current-year cash collections and the performance of the state economy provide “mixed” signals. The Analyst will evaluate collections due on January 15 for estimated taxes from individuals to get a better understanding of the path of the economy. 

·                    Expenditures—The LAO considers the Administration’s assumption that property tax revenues will grow by 10% next year to be optimistic. If these revenues fall short, the General Fund will have to make up the difference under the provisions of Proposition 98 and the revenue limit formulas. In addition, the Governor’s Budget relies on $506 million in additional revenues from five tribal gaming compacts. The LAO concludes that this could be overstated by $300 million, given the time it will take to approve the compacts and install new gaming devices. 

·                    Legal Risks—Several previously adopted Budget-balancing proposals have been rejected by the courts, yet the Administration proposes to move forward, hoping for a favorable decision in the Appellate Courts upholding these initiatives. Also, the LAO consulted the Legislative Counsel about the viability of transferring support for K-12 Home-to-School Transportation from Proposition 98 to a special transportation fund. Ms. Hill asserted that there was “legal uncertainty” surrounding this proposal. 

In summary, Ms. Hill identified numerous proposals under the Governor’s Budget that could go wrong and urged the Legislature to avoid them and instead adopt more prudent budget balancing options. The LAO’s detailed review of the Governor’s Budget will be released February 21, 2007.

 —Robert Miyashiro