With tax revenue coming in drastically below projections for the month of April, State Controller John Chiang sent out a strong warning to lawmakers last week that California will be unable to pay its bills later this year without a timely, financeable budget plan.
Gov. Jerry Brown is expected to release the May revision to the state budget today that calls for a combination of cuts and tax increases to bridge a $19.2 billion deficit.
For April, personal income tax revenue was 21.5 percent lower than projected and sales tax revenue was 54.4 percent lower than projected, according to Chiang’s office.
The state is scrambling to update revenue projections for next fiscal year, said Jacob Roper, a spokesman for the State Controller’s Office.
"We are expecting a lot of income tax revenue in June but we don’t know if it will be like April,” Roper said.
Lawmakers have already trimmed from the state budget nearly $50 billion in expenses the past few years.
Assemblyman Rich Gordon, D-Menlo Park, expects to see more cuts in the May revise.
"I anticipate the budget will be very stark with some fairly severe cuts,” Gordon told the Daily Journal. "It may be time for Californians to consider how much government they want. It is real simple. We cannot provide services without money.”
More cuts will be needed even if state voters approve tax initiatives on the November ballot, including a boost in state sales tax from 7.25 percent to 7.5 percent and boost in income tax for those who make more than $250,000 annually.
The extra tax income is expected to generate anywhere from $7 billion to $9 billion annually for the state the next few years before the tax hikes sunset if voters approve them in November.
"It’s troubling that revenue is coming in below projections as budget talks pick up,” said Assemblyman Jerry Hill, D-San Mateo. "There’s going to be more service cuts but we have to ensure that we protect the most vulnerable, education and services like child care.”
Brown has pledged the temporary taxes will only be spent on funding education.
"The stark truth is that without some new taxes, damaging cuts to schools, universities, public safety and our courts will only increase,” Brown wrote in a statement following the release of the state budget in January.
If the tax initiatives do not pass, Gordon said, the state will be "further in a hole.”
The state ended last fiscal year with an $8.2 billion deficit and the combined current-year cash deficit stands at $19.2 billion, according to Chiang’s office. The deficit is being covered with $12.8 billion in internal borrowing, temporary loans from special funds, and $6.4 billion of external borrowing, according to Chiang’s office.
The deficit could climb even higher, Gordon said.
"Rumors are the current deficit could be $12 billion to $15 billion,” Gordon said. There is even talk, he said, that the governor will propose to reduce the pay for state employees.
The shortfall in tax revenue burdens the state, Chiang said.
"The task of crafting a credibly-balanced budget has been made more difficult by a nine-month revenue shortfall of $3.5 billion. Without a timely, financeable budget plan, the state will be unable to access the working capital needed to pay its bills later this year,” Chiang wrote in a statement Tuesday.
Year-to-date through April, total revenue was down $3.5 billion, 5.1 percent, from estimates in Brown’s proposed budget, according to Chiang’s office.
Leading that disparity was income tax, down $2.7 billion, or 6.2 percent. Sales tax missed estimates by $411 million, or 2.7 percent, and corporate tax receipts were down $464 million, or 7 percent, according to Chiang’s office.
Gordon is on the Assembly Budget Committee and a special hearing has been called Tuesday to discuss Brown’s budget revisions.
Bill Silverfarb can be reached by email: email@example.com or by phone: (650) 344-5200 ext. 106.