Pulling the Trigger: Mid-Year Cuts Likely as LAO Reports St Will Face a Deficit of $13 Billion

The state Finance Department and Controller John Chiang have already had their say about the state’s revenue forecast and troubling fiscal outlook and now the Legislative Analyst's Office has released its take on the numbers, which are garnering so much attention because the status of the state’s shortfall will affect the likelihood of dreaded trigger cuts. As a refresher, Chiang reported the state has a gap of $1.5 billion in revenues and soon after the Finance Department said the state was $1.3 billion behind projections. Under the budget, it was estimated that the state would take in $88.5 billion in revenues, but the LAO has concluded revenues will only amount to $84.8 billion, which means the numbers will be $3.7 billion short of the $4 billion officials were hoping to receive in order to close the budget and avoid mid-year cuts. The revenue shortfall is supposed to translate into $2 billion in trigger cuts to various state programs, but while the governor’s administration is now acknowledging that some cuts will be necessary, they are not committing to a precise number and will gather further details come December. On December 15th the Department of Finance will release its final revenue projections, and its report will play a major factor in deciding cuts.

Overall the LAO has posited that the state's deficit will be nearly $13 billion through June 2013. The report concisely states: “The remaining work of eliminating the state's persistent, annual deficit will require more difficult cuts in expenditures and/or increases in revenues.”

In response to the LAO’s projections, Controller Chiang released the following statement:

“Today’s news is no surprise.  Our economy’s sluggish growth means a tax windfall is unlikely, and not a penny of the estimated $4 billion has been collected to date. The Governor and lawmakers were smart to backstop their hopeful budget projections with mid-year cuts, but they may not have gone far enough.  Today’s report tracks with the troublesome pattern we have seen in the State’s receipts and spending, which could mean a cash-flow problem in California’s near future.”

The LAO’s outlook has also reenergized debate about how the state should tackle its deficit, with Democratic leaders calling for tax hikes and Republicans unsurprisingly disagreeing with that assessment and criticizing the shaky budget that Democrats passed on their own. You can read the LAO’s full report here.

Finally, the LAO released the following video to explain the conclusions it reached: