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California Risks ‘Drastic’ Cuts as Receipts Miss Forecast, Controller Says

California faces “drastic” cuts to universities, schools and social programs if revenue continues to trail budget forecasts, the state controller said after July collections fell short by about 10 percent.

A series of “triggers” written into the most-populous state’s $86 billion general-fund budget would cut spending on universities, home care for seniors and the disabled, libraries and other programs if revenue falls $1 billion short of plan. A $2 billion gap would mean a seven-day cut in the school year and an end to busing subsidies.

“This is what we’ve been fearful of,” Debra Brown, a lobbyist for the California School Boards Association, said yesterday in a telephone interview. “This brings us a half- billion dollars closer to the trigger going off.”

Revenue in July, the first month of the 2012 fiscal year, was $538.8 million less than forecast, according to figures released yesterday by Controller John Chiang.

“The cuts we have already made have really hurt students, the elderly, the poor and others,” Gil Duran, a spokesman for Governor Jerry Brown, said by telephone. “A further round of cuts is not something we would like to see happen.”

California joins states from Maine to Washington facing possible budget cuts as the fiscal year begins following projected gaps totaling $527 billion from 2008 to 2013. Cities including Chicago, the third largest in the U.S. by population, also are preparing for cuts as federal subsidies decline.

Ohio Bracing

Ohio Governor John Kasich has asked aides to monitor collections to determine whether the state needs to reduce planned spending. Revenue for July trailed the budget forecast by $16 million, or 1.3 percent, according to preliminary data.

In Michigan, tax revenue from May to July climbed almost 11 percent from the same period in 2010, according to legislative data. Collections may weaken if the U.S. economy slows, according to the state’s House Fiscal Agency in Lansing.

Chicago Mayor Rahm Emanuel said July 29 that the city’s projected deficit had widened to $635.7 million and that cuts were needed. Maine and Washington have also begun mapping out further reductions, according to local newspaper reports. In 26 states, tax receipts are projected to rise less than 5 percent in fiscal 2012, and will fall in six, the National Conference of State Legislatures said yesterday in a San Antonio meeting.

California Impasse

Brown signed California’s budget in June after failing to persuade Republican lawmakers to agree to let voters decide whether to extend expiring tax and fee increases.

In July, the retail-sales levy dropped to 7.25 percent from 8.25 percent and vehicle-registration fees fell to 0.65 percent of value from 1.15 percent as the temporary measures ended.

Brown’s budget cut spending by $12 billion and counted on a recovering economy to deliver $4 billion in extra tax revenue.

“That $4 billion is never going to materialize,” Christopher Thornberg of Los Angeles-based Beacon Economics LLC said by mobile phone yesterday. “These numbers show that. We’re going to see a budget battle in three to four months.”

The Association of California School Administrators got state assurances that the budget’s revenue forecast looked good in June, said Bob Wells, the group’s executive director. Schools have lost $20 billion in aid during the past three years and have held back on additional spending cuts, he said.

“That no longer looks prudent,” Wells said by telephone.

Based on the latest numbers, administrators may plan more cuts in teachers and support workers, Wells said. Employment expenses account for 90 percent of their costs, he said.

California sales and use taxes trailed the budget forecast by $139.4 million, or more than 12 percent, Chiang said. Receipts from corporate levies missed by $69.5 million, or 19 percent, he said. Personal-income taxes produced $89 million, or 2.9 percent, more than estimated.

“While we hope for better news in the months ahead, every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year,” Chiang said in a separate statement.

To contact the reporters on this story: James Nash in Sacramento at Jnash24@bloomberg.net; and Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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