Stormy Skies Ahead

The Department of Finance has posted its most recent multiyear budget forecast, updated to reflect the July budget agreement. The forecast, which assumes that all of the savings and other solutions included in the budget agreement are realized, projects an operating shortfall of $7.4 billion in 2010-11, widening to $15.5 billion in 2011-12, the first year of the next governor’s term in office. The forecast assumes that governors will suspend the transfer into the Budget Stabilization Account, a budget reserve added by Proposition 58 of 2004, through 2012-13, something that most likely would not have been possible if the voters had approved Proposition 1A of 2009 in May.

Back up materials to the forecast, not posted on the web, but circulating among Sacramento budget wonks, provide interesting insights into the implications of the recent agreement.  The forecast assumes, for example, that the state will repay local governments for property tax dollars borrowed pursuant to Proposition 1A of 2004 in 2012-13. The state will repay local governments $2.37 billion in 2012-13 in exchange for the $1.935 billion borrowed in the recent agreement – that’s an extra $435 million in interest and other amounts owed. The spending detail also reflects continuation of the recent spending cuts, such as the deep reductions in the Healthy Families Program, through the end of the forecast period and continued diversion of so-called “spillover” funds from transit to cover state debt service costs. Speaking of debt service, that’s one area of the budget that is expected to rise sharply, increasing by 91.5 percent between 2008-09 and 2012-13, driven both by General Obligation bond debt, which is expected to increase by 84.2 percent, and lease revenue bond debt, anticipated to rise by 136.0 percent.  In contrast, Proposition 98 spending is anticipated to rise by a modest 17.1 percent over the same period.

— Jean Ross

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