Changes in Revenues and Expenditures Since January. The administration’s estimates for major tax revenues are down $243 million combined over the current and budget years since January. Stronger-than-expected 2006-07 revenue growth is more than offset by weakness in 2007-08. General Fund costs are higher for Proposition 98 and prisons. The administration has also provided a more realistic estimate of gambling revenues and delayed the sale of pension obligation bonds.
New Budget Solutions. These factors led to the administration putting forward over $2 billion in new budget solutions. The administration proposes to sell EdFund, capture tobacco securitization revenues now rather than over time, expand a redirection of public transit funds for General Fund purposes, and eliminate a scheduled increase for Supplemental Security Income/State Supplementary Program (SSI/SSP) recipients.
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Reserve Likely Overstated by $1.7 Billion. The May Revision makes a number of optimistic assumptions about its proposals—such as the legality of its public transit proposal, its estimates of gambling and property tax revenues, and assumed savings from midyear reductions. In total, we estimate that the Governor’s reserve is likely overstated by $1.7 billion, and the May Revision would leave only a $529 million reserve. This reduced reserve would be subject to additional risks and cost pressures.
Out-Year Problem Has Worsened. We estimate that, under the Governor’s proposals, state expenditures would exceed revenues by more than $3 billion in 2007-08. This shortfall would grow to more than $5 billion in 2008-09 due to a number of one-time solutions contained within the May Revision.
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