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Larger Budget Shortfall Predicted
Finances: Governor's projected deficit of $12.5 billion is $5 billion short, analysis says. He calls report too pessimistic.
By JULIE TAMAKI
TIMES STAFF WRITERFebruary 21 2002
SACRAMENTO -- Lawmakers will need to come up with an additional $5 billion to balance the state budget as the recession and weakening stock market take a heavier toll on California coffers than previously anticipated, Legislative Analyst Elizabeth Hill warned Wednesday.
Hill predicted that Gov. Gray Davis' $97.9-billion spending plan for the next fiscal year--which contains a road map for closing a $12.5-billion shortfall--would still leave the state's bank account $5 billion out of whack.
So far, Davis and lawmakers have solved nearly $3 billion of the now-$17.5-billion problem by adopting a variety of cuts and budget adjustments in the current fiscal year, some of which will carry over into 2002-03. In her annual critique of the governor's budget proposal, Hill blamed the growing gap on a combination of overstated revenues to the tune of $3.9 billion and understated expenses of $1.1 billion.
Hill has the advantage of analyzing December and January tax receipts, unlike the Davis administration, which fashioned its 2002-03 spending plan late last year.
Consequently, Hill is predicting a steeper decline in the amount of capital gains and stock-option income reported on returns. Her office projects a 62% dip, compared with the 47% decline anticipated by the administration.
The state has grown increasingly dependent on such revenues in recent years, but they have dropped off sharply because of the stock market's downturn.
Hill warned that California's fiscal woes may worsen if, as she predicts, the federal government does not fully meet Davis' request for $1.1 billion in assistance.
The news isn't likely to get better any time soon. California faces the prospect of ongoing operating shortfalls of $7 billion in each of the two fiscal years starting in July 2003, Hill said.
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