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Erik Skinner’s First Update on the 2010-11 Budget - Nov. 12, 2009

From: Skinner, Erik
November 12, 2009

Dear Colleagues:
As is common this time of year, speculation has begun among Capitol insiders regarding the size of the state budget deficit. The revenue and expenditure estimates underlying the 2009-10 State Budget have by now grown stale. Updated budget estimates from the Legislative Analyst’s Office (LAO) and the Department of Finance (DOF) are around the corner, but not yet available. In this vacuum of information, budget staffers and lobbyists begin making guesses and sharing rumors.
Governor Schwarzenegger contributed to the buzz when, on Tuesday, November 10, at a press conference regarding the recently enacted water legislation, he made off the cuff remarks regarding the state budget. In his comments, he state that “we're not out of the woods yet, we still have a problem.” He went on to explain that the administration estimates that the 2009-10 State Budget is on track to end the fiscal year between $5 billion and $7 billion in the red. The Governor did not provide specifics on the shortfall, but subsequent comments from DOF representatives make clear that the shortfall is largely due to state revenues coming in below estimates. The State Controller indicates that state revenues for the first quarter of the 2009-10 fiscal year came in $1.1 billion below budget act estimates. Extrapolating this shortfall over the rest of the year generates an estimated annual shortfall of $4.4 billion. In addition, it appears that the Governor’s estimate factors in various fiscal liabilities from ongoing litigation which in some cases seeks to block budget cuts ($80 million in cuts to In-Home Supportive Services) and in other cases challenges the state’s ability to borrow funds ($850 million from Redevelopment Agencies).
In addition, the Governor noted that the 2010-11 budget already faces a deficit of roughly $7 billion due to one-time solutions used to balance the 2009-10 budget. These one-time solutions fall into a number of categories including reserves, borrowing, one-time federal funds, and expiring tax revenues. Because these one-time solutions will no longer be available next year, they result in a structural imbalance or budget shortfall.
Taken together, the 2009-10 and 2010-11 budget shortfalls noted by the Governor total between $12 billion and $14 billion. While not offering any specifics on how he planned to close the budget gap, the Governor said “So we just have to hang in there, tighten our belts and live within our means. That's the most important thing.” He indicated that he would share his budget plan with the public in January, thus confirming that he does not intend to call a special session on the budget this fall. January 10 is the constitutional deadline for the Governor to release a budget proposal; with the tenth falling on a Sunday this coming year, he will most likely release his budget plan on January 8.
Next week, the LAO will release its Fiscal Outlook, a multi-year budget forecast based on updated revenue and expenditure estimates. Included in the reported are estimates of the Proposition 98 funding requirement, a major factor in shaping the budget prospects for the California Community Colleges. Most budget watchers consider this report the first credible peak at the upcoming budget cycle. When the report is issued, I will provide a budget update summarizing its findings.
Erik Skinner
Vice Chancellor for Fiscal Policy
California Community Colleges,
Chancellor's Office
1102 Q Street
Sacramento, CA  95811-6549
direct line:  916-323-7007
fax: 916-323-8245

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Last Updated: 11/16/09