Today, the Legislative Analyst’s Office released its November forecast, also known as “California’s Fiscal Outlook,” and the news is bad.  Really, really bad.  According to the LAO economic analysis, the state will face a $25.4 billion budget deficit in the coming year: a projected deficit of $6 billion in 2010-11 and $19 billion in 2011-12. 

There are a few noteworthy issues that contribute to this dire warning.  First, the LAO anticipates that the state will be unable to secure about $3.5 billion of budgeted federal funding in 2010-11.  The remaining current year deficit results from higher-than-budgeted costs in state prisons and other programs and assumes that the passage of Proposition 22 will preclude the state from achieving about $800 million of budgeted solutions in 2010-11.  (While this issue has been raised previously by the LAO, there are some who disagree about the extent of the fiscal impact of Proposition 22.  Simply put, there is a great deal of uncertainty as to the impacts to the state’s bottom line resulting from Proposition 22.)

The 2011-12 deficit is exacerbated by the one-time solutions utilized to address the 2010-11 budget solution and an unusually slow economic recovery.  The small portion of California taxpayers that have the ability to boost state coffers with income taxes on their capital gains are unlikely to modify their economic behavior to help the state out with its fiscal problems.  The temporary tax increases approved in 2009 will expire and federal stimulus funding will be exhausted. 

To pile on more bad news, the LAO forecasts budget deficits of $20 billion annually through 2015-16.  And the state’s out-year liabilities continue to grow.  And the cash situation?  No surprise here – it’s not good.

The chronically depressed may wish to join us at the CSAC Annual Meeting in Riverside County to hear more from the Legislative Analyst’s Office on the November forecast, as well as others who will discuss the impacts of recently approved ballot measures on locals and on the state budget process. 

For a teeny, tiny glint of hope, the State Controller’s Office released its October cash report today.  State general fund revenues continue to come in above Budget Act estimates; the numbers for October were 4.6% ($232.3 million) higher than the budget planned for. Sales and use taxes were up 13.1 percent, personal income taxes were up 1.8 percent, and corporate taxes were up 8.8 percent.

Compared to the same month a year ago, general fund revenues for October are up 9.0 percent due to the personal income tax, which is up 22.2 percent. Sales and use taxes (-10.4 percent) and corporate taxes (-34.4 percent) both came in lower.

Year-to-date, state general fund revenues are 0.9 percent above Budget Act estimates. Personal income taxes are up 0.5 percent, sales and use taxes and corporate taxes are both up 1.5 percent. Because the budget was so late, all of these increases are due to October alone.

Compared to this time last year, year-to-date general fund revenues are up 2.7 percent. Personal income taxes are up 9.0 percent (a sign that the economy really is improving), sales and use taxes are up 1.7 percent, but corporate taxes are down 25.0 percent.