State Finds Extra $4 Billion

Finally some good budget news -- just a little anyway.  With the thaw of the recession comes a welcome surprise for state coffers.

According to the state controller's office, California is running about $4 billion ahead of projected personal income tax revenues for 2010-11. That's important because personal income taxes represent slightly more than half of all state generated receipts. Sales taxes, which account for about 25 percent of all revenues, are also running slightly ahead of projections.

This news is important as state leaders try to find a way to balance the budget. Democratic Governor Jerry Brown has advocated a public vote on extending three temporary tax increases on income, sales and motor vehicles for five years.

For the record, corporate income taxes, which contribute about one-eighth of state revenues, are running slightly behind projections. The remaining revenues come from various fees and special taxes. Bottom line: for the moment, California looks to be collecting about $4 billion more than anticipated.

Republican leaders in the state legislature have argued that the budget must be balanced via cuts beyond the $14 billion that have already been sliced out of the budget, more than half of which have come from K-12 public education, community colleges and state universities.

So, now what?
State leaders may have a bit of wiggle room. This may allow them to agree on a plan for the voters that keeps the temporary taxes for only three years instead of five. Or perhaps they will ask the voters to decide on only two of the three temporary taxes instead of the current three. The point is that the unexpected revenues may give leaders flexibility they have not had previously.

That may help us through the current mess, but it's the long term issues that elected officials must address. Every year, California operates with a $20 billion structural deficit--that is we begin the year with commitments of $20 billion more than we take in. Sooner or later, leaders will have to agree on permanent reductions or new revenue sources.

All this can change, of course, between now and the end of the fiscal year on June 30. But if the trend continues, California's $12 billion projected deficit could be sliced by one-third--for this year, anyway.

For now, they may find it just a little easier to sleep at night, even if the respite is temporary.

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