LAO Projects an $8 Billion Fall in Revenues
On March 13, the Legislative Analyst’s Office (LAO) issued a budget report entitled “The Fiscal Outlook Under the February Budget Package” (available at http://www.lao.ca.gov/2009/bud/feb_overview/feb_overview_031309.pdf). This report provides an updated fiscal outlook for the state reflecting the recently enacted budget package as well as new economic projections. Major findings include:
- The state’s economic and revenue outlook continues to deteriorate.
- State revenues for 2009-10 are projected to fall $8 billion short of the levels assumed in the recently adopted budget package. Because the budget package has a $2 billion reserve for 2009-10, LAO pegs the budget deficit at $6 billion.
- This drop in revenues is projected to cause a $3.6 billion decline in the Proposition 98 minimum funding guarantee for 2009-10. This would allow the Legislature to cut funding for K-12 schools and community colleges by this amount in 2009-10 without suspending Proposition 98.
- LAO recommends that the Legislature reduce Proposition 98 funding by roughly $3 billion in 2009-10 and backfill these cuts with federal funds.
- The new infusion of federal economic stimulus funds provides an opportunity to close the budget gap without making significant new cuts or raising new taxes.
- LAO recommends raising CCC student fees by 100 percent to $40 per unit in order to take advantage of new expansions in federal financial aid. It is important to note that LAO has made similar recommendations for many years without success and we have not received any indication that the Legislature is jumping on board this recommendation. We have raised concerns that such a massive increase in fees would have incredibly disruptive impacts on students, families, and colleges. We are encouraging state leaders to see the expansion in federal financial aid as an opportunity to improve college affordability and student success, rather than a windfall to the state coffers.
These findings and recommendations will help to frame upcoming legislative budget hearings. It is worth noting that the updated revenue projection is not typical this time of year. Normally, the revenue picture would not be updated until after April when the majority of state tax receipts are collected. LAO may have felt a need to warn Legislators of softening revenues in order to keep them from spending the new federal revenues on program expansions. In any case, much more solid estimates will be provided later in the Spring as part of the Governor’s May Revision. Given recent economic trends, there is a general concern that the revenue numbers may grow worse compared to LAO’s recent forecast.
Vice Chancellor for Fiscal Policy
California Community Colleges,
1102 Q Street
Sacramento, CA firstname.lastname@example.org
direct line: 916-323-7007