Governor Jerry Brown’s new budget may overestimate California revenue by as much as $6.5 billion through June 2013 -- even with a $2 billion gain from a Facebook Inc. share sale, the state Legislature’s policy analyst said.
California will probably collect about $177.5 billion in general-fund revenue through the end of the next fiscal year, not $184 billion as Brown has forecast in a proposed budget that includes higher income and sales levies, the state’s Legislative Analyst’s Office said yesterday. Brown and the analyst differ on how much the state will receive from capital gains.
“We can identify no strong rationale for the administration’s assumption that capital gains will grow very rapidly in 2012 and later years,” the analyst said in a report.
The largest U.S. state by population, and the most indebted, is confronting a $9.2 billion deficit. Brown, a 73-year-old Democrat, wants voters to boost sales and income taxes to raise about $6.9 billion annually until they expire in four to five years. He built that amount into his spending plan and inserted a provision that automatically triggers $4.8 billion in cuts to schools if voters reject the higher levies.
The report “underscores the need for additional revenues, as the governor has proposed with his November ballot initiative,” H.D. Palmer, Brown’s budget spokesman, said yesterday in a statement. “It also highlights the fact that the pending IPO by Facebook, while potentially significant, can’t be expected to lessen the need to take tough steps now.”
Facebook, the world’s most-popular social-networking site, filed for an initial public share sale this month. The Menlo Park, California-based company has yet to set a price range.
Brown’s budget assumes California taxpayers will have $96 billion in capital gains this year, more than triple the amount in 2009, the year when the longest recession since the 1930s ended. He also estimates that the state will take in $8.6 billion in taxes on those earnings, supplying about 9 percent of general-fund revenue.
The governor assumes that reductions in marginal tax rates passed under President George W. Bush in 2001 and 2003 will be allowed to expire in December and that higher-income residents would accelerate taking capital gains to count them as this year’s income, to take advantage of the lower rate.
Brown also counts on some capital gains being taken this year as investors try to shield income from higher Medicare taxes scheduled to begin in 2013.
Standard & Poor’s raised the outlook on California’s credit to positive on Feb. 14, its second revision since Brown took office 13 months ago. California’s A- rating, the fourth-lowest investment grade, is the worst of any state set by the company.
“Although we continue to see the structural fiscal and budget-process changes as the most important to the state’s fundamental credit quality, we recognize that cyclical factors could also support incremental strengthening,” S&P said yesterday after the analyst’s report came out. “Just as the economic recession weakened the state’s credit quality, the recovery, in our view, has potential to strengthen it.”